Business Valuation Letter Report

For:

Central States Supply

132 Industrial Park Road
Bowling Green, Kentucky 42101

Prepared for:

Leonard Shuster

Date of Valuation: January 27, 2008

Prepared by:

Russell L. Brown
RDS Associates, Inc.
291 Main Street
Niantic, CT 06357

Personal and Confidential

Preface

This Company’s Business Valuation and Letter Report is provided for the sole and exclusive use of Leonard Shuster, Owner. The business valuation pertains to Central States Supply, a C-Corporation, (herein after referred to as the “Company”). The purpose of this Report is to provide the opinion of Russell L. Brown as to the fair market value of the Company based on the financial operating information for the last three fiscal years through December 31, 2007, and other considerations.

The term “fair market value” is defined as the price at which a business would change hands between a willing and knowledgeable buyer and a willing and knowledgeable seller. This Report:

Assumes that the new owner(s) of the Company will have the necessary resources and commitment to not only acquire but also to grow the Company.

Assumes that the buyer is fully knowledgeable about the Company and its operations and will accomplish a rigorous due diligence process to verify all purported facts, estimates, calculations and suppositions and not rely solely on this document to support a purchase decision.

May have considered the Company’s desirable qualities and projected improvements, enhancements and potential future performance that may or may not be realizable.

The appraisal and subsequent valuation estimate of a closely-held business such as Central States Supply, is not an exact science and requires considerable judgment of many factors such as:

The history and nature of the business the Company is engaged in.
The outlook for the overall economy and the industry the Company is in.
The latest financial condition of the Company.
The future earning capability of the Company and the associated related risks.
The capability of the Company to continue to generate the necessary cash flow to support a purchase.
The worth and value of the goodwill/intangible assets of the Company.

The author of this Business Valuation and Letter Report has relied on the information provided by Thomas C. David, Accountant, Robert T. Hedden, Attorney as to the nature of its operations and financial performance. No attempt has been made to independently verify the accuracy of the information although all facts presented are believed to be true and fully supportable under a rigorous due diligence examination.

Section 1

Income & Expense Reconstruction

Income & Expense Reconstruction <%cont%>

Central States Supply
132 Industrial Park Road
Bowling Green, Kentucky 42101

This data is "as of" December 31, 2007

Accounts							Notes
Fiscal Year Ending:	2007		2006		2005
	ACTUAL	ADJUSTED	ACTUAL	ADJUSTED	ACTUAL	ADJUSTED
REVENUES
Business Sales	3,067,651	3,067,651	2,713,044	2,713,044	2,461,540	2,461,540	1
Return & Allowances	10,551	10,551	8,432	8,432	0	0
Other Income.1	6,695	5,534	12,714	8,004	6,870	2,897	2
TOTAL INCOME	$3,063,795	$3,062,634	$2,717,326	$2,712,616	$2,468,410	$2,464,437

COST OF SALES
Purchases	1,457,005	1,457,005	1,317,300	1,317,300	1,227,057	1,227,057
Direct Labor	42,900	42,900	38,322	38,322	35,200	35,200
Other Costs	8,240	8,240	6,500	6,500	0	0
TOTAL COST OF SALES	$1,508,145	$1,508,145	$1,362,122	$1,362,122	$1,262,257	$1,262,257
Beginning Inventory	451,570	451,570	354,973	354,973	282,900	282,900
TOTAL COST OF INVENTORY FOR SALE	$1,959,715	$1,959,715	$1,717,095	$1,717,095	$1,545,157	$1,545,157
Ending Inventory	544,750	544,750	451,570	451,570	354,973	354,973
TOTAL COST OF GOODS SOLD	$1,414,965	$1,414,965	$1,265,525	$1,265,525	$1,190,184	$1,190,184

GROSS INCOME	$1,648,830	$1,647,669	$1,451,801	$1,447,091	$1,278,226	$1,274,253

OPERATING EXPENSES
Advertising and Promotions	18,485	18,485	5,548	5,548	5,257	5,257
Amortization	10,352	0	10,352	0	10,352	0	3
Automobile	3,432	3,432	2,875	2,875	3,205	3,205
Bad Debts	2,870	2,870	0	0	0	0
Bank Charges	949	949	851	851	643	643
Compensation of Officers/Partners	607,356	250,000	641,393	266,102	529,233	267,000	4
Contract Labor	3,657	3,657	14,018	14,018	2,414	2,414
Contribution & Charity	520	0	540	0	354	0	5
Depreciation	49,667	0	39,271	0	44,000	0	6
Dues and Subscriptions	3,223	3,223	1,945	1,945	1,286	1,286
Employee Benefit Programs	2,346	2,346	7,891	7,891	1,438	1,438
Entertainment	379	379	498	0	316	0	7
Freight & Shipping	70,564	70,564	74,593	74,593	42,039	42,039

Income & Expense Reconstruction -continued

Central States Supply
132 Industrial Park Road
Bowling Green, Kentucky 42101

This data is "as of" December 31, 2007

Accounts							Notes
Fiscal Year Ending:	2007		2006		2005
	ACTUAL	ADJUSTED	ACTUAL	ADJUSTED	ACTUAL	ADJUSTED
Fuel	14,337	14,337	13,852	13,852	12,826	12,826
Insurance-health	11,591	11,591	6,725	6,725	5,730	5,730
Insurance-keyman	10,500	0	9,800	0	9,500	0	8
Insurance-property	31,988	31,988	22,667	22,667	20,244	20,244
Interest	15,299	0	16,102	0	17,000	0	9
Internet Related	677	677	580	580	550	550
Janitorial & Cleaning	6,478	6,478	5,874	5,874	5,643	5,643
Miscellaneous-1	14,848	8,470	4,561	4,561	2,373	2,373	10
Office	7,352	7,352	3,899	3,899	5,553	5,553
Postage	1,618	1,618	912	912	656	656
Professional Fees	2,525	2,525	2,467	2,467	2,323	2,323
Rental Equipment	1,235	1,235	0	0	0	0
Rents	142,500	102,000	100,231	100,231	51,381	51,381	11
Repairs and Maintenance	20,463	20,463	39,781	39,781	10,459	10,459
Rolling Equipment (repairs,fuel,etc.)	44,962	44,962	18,604	18,604	23,295	23,295
Salaries and Wages	144,990	144,990	128,573	128,573	99,524	99,524
Supplies-office/shop	18,810	18,810	26,088	26,088	17,052	17,052
Taxes-miscellaneous and Licenses	56,909	56,909	47,670	47,670	48,385	48,385
Telephone and Telecommunications	9,334	9,334	8,594	8,594	7,511	7,511
Tools and Equipment	7,096	7,096	13,373	13,373	6,981	6,981
Trash and Refuse	2,555	2,555	2,411	2,411	2,210	2,210
Travel	24,636	19,636	16,968	12,968	10,782	8,782	12
Utilites (heat, electricity, etc.)	7,959	7,959	8,367	8,367	4,852	4,852
TOTAL EXPENSES	$1,372,462	$876,890	$1,297,874	$842,020	$1,005,367	$659,612

TAXABLE INCOME	$276,368		$153,927		$272,859

AVAILABLE CASH FLOW(ACF)		$770,779		$605,071		$614,641

Weighted Average ACF	$689,520

Income & Expense Reconstruction -continued

Central States Supply
132 Industrial Park Road
Bowling Green, Kentucky 42101

This data is "as of" December 31, 2007

Notes:

1	Sales have increased at approximately a 10% rate for the past several years and are projected to increase at this rate for the next several years. Sales appear to be the result of a business base increase rather than an increase in pricing to existing customers.

Other income is primarily due to incidental sales of minor services rather than the Company's primary product. This income item has been adjusted downward in each of the three years to exclude the Company's interest income on bank deposits in keeping with the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) component of the valuation approach.

3	In keeping with the EBITDA component of this valuation the Amortization expense is adjusted to zero in each of the three years.

The Compensation of Officers expense item has been adjusted downward in each of the three years to reflect the actual amount the Company would have had to pay an employee to accomplish the day-to-day functions of the Company's three owners as follows:

Operations Manager - $125,000 (replaces Leonard Shuster)
Buyer/Salesman - $75,000 (replaces William Shuster)
Accountant/Bookkeeper - $50,000 (replaces Libby Shuster)

5	The Contributions expense has been adjusted to zero to reflect the discretionary nature of this expense as not necessary to the successful operation of the Company.

6	In keeping with the EBITDA component of this valuation the Depreciation expense is adjusted to zero in each of the three years.

7	The Entertainment expense has been adjusted to zero to reflect the nature of this item as a discretionary expense.

8	The Keyman Insurance expense has been adjusted to zero to reflect the nature of this item as a discretionary expense and not necessary to the successful operation of the Company.

9	In keeping with the IBITDA component of this valuation the Interest expense has been adjusted to zero in each of the three years

10	The Miscellaneos expense has been adjusted downward by $6,000 in 2007 to reflect the nature of this item as a discretionary expense and not necessary to the successful operation of the Company. The Company sponsored a local race car driver.

11	The Rent expense for 2007 has been adjusted to reflect the amount of rent the Company owners will lease the Company's facilities for to a new owner. The Company owners are not including the real estate in the business sale and will provide a long term lease for the Company's new owner.

12	The Travel expense has been adjusted downward in each of the three years to reflect the nature of this item as a discretionary expense and not necessary to the successful operation of the Company.

Section 2

Multiplier Calculation

Multiplier Calculation

Central States Supply
132 Industrial Park Road
Bowling Green, Kentucky 42101

This data is "as of" December 31, 2007

	Possible Score	Assessed Score
1. Continued Earnings Risk Assessment
a. Continuation of Earnings at Serious Risk	0
b. Steadily Increasing or Stable Earnings Likely (for 3-5 years)	4
c. Significantly Growing Earnings Assured (for 3-5 years)	8	4
2. Company History Assessment
a. Recent Start-up Company/Not Well Established (less than 5 years)	0
b. Well Established Company/Good Customer Base (5-15 years)	3
c. Long Record of Successful Business/Strong Customer Base(16+ years)	6	6
3. Company Growth Projection
a. Business Revenues Have Been Declining	0
b. Steady Revenue Growth/Faster than Inflation	3
c. Dynamic Revenue Growth Rate (25%+ annually)	6	3
4. Past Earnings Momentum
a. Earnings Have Declined for Each of the Last 3 Years or More	0
b. Earnings Have Essentially Stayed the Same (less than 5% increase over inflation) for the Last 3-5 Years	4
c. Earnings Have Increased Greater than 5% Above Inflation for Each of the Last 3-5 Years or More	8	6
5. Competition Analysis
a. Highly Competitive Market/Non-Unique Product and/or Service	0
b. Normal Competitive Conditions in a Stable Market	3
c. Little Competition in a Stable or Growing Market	6	2
6. Business Expansion Opportunity Assessment
a. Business Expansion Not Likely Without Major Capital Investment	0
b. Moderate Expansion Possible With Moderate Capital Investment	3
c. Immediate Significant Expansion Possible With Little to No Investment	6	2
7. Barriers to Entry for New Competition
a. None or Minor Barriers to Entry by New Competition	0
b. Moderate Barriers to Entry by New Competition	4
c. Major Barriers to Entry (e.g. limited customer base, high capital costs,restrictive licensing, limited business locations, etc.)	8	2
8. Customer Base Sensitivity
a. Revenues Highly Dependent on One/Few Customers	0
b. Revenues Dependent on a Moderate Number of Customers (Revenues Not Dependent on One/Few Customers)	3
c. Broad-based/Diversified Customer Base	6	6
9. Management and/or Key Employee Retention Projection
a. Owner-Managed with Owner Unable or Unwilling to Remain for Transition and/or Key Employee Retention Uncertain	0
b. Mainly Owner-Managed With Some Employee Mgmt. to Remain or Owner Willing to Remain for Transition and/or Minimal Key Employee Retention Issues	2
c. Full Company Management Team Likely to Remain and no Key Employee Retention Issues	4	0
10. Business Location Continuation
a. The Business Must Be Moved After the Sale	0
b. The Business Has a Lease That Must Be Renegotiated	2
c. The Business Has a Long-Term Lease at a Desirable Location With Favorable Terms or Owns Its Premises or is not Dependent on Location	4	2
11. Operational Facility/Equipment Analysis
a. The Facilities/Equipment Require Significant Immediate Capital Investment	0
b. The Facilities/Equipment Require Moderate Capital Investment	2
c. The Facilities/Equipment Do Not Require Capital Investment	4	2

Multiplier Calculation - Continued

Central States Supply
132 Industrial Park Road
Bowling Green, Kentucky 42101

This data is "as of" December 31, 2007

	Possible Score	Assessed Score
12. Capital Equipment Analysis
a. Business Operations Use a Significant Amount of Capital Equipment	0
b. Business Operations Use a Moderate Amount of Capital Equipment	3
c. Business Operations Use Very Little or No Capital Equipment	6	2
13. Business Purchase Financing Likelihood
a. Seller, Banks, etc. Unwilling to Finance Acquisition (100% Cash Required)	0
b. Limited Financing Available from Seller, or Other Sources. (50% or More Cash Required)	3
c. Substantial Financing Available at Competitive Rates (Less Than 50% Cash Required)	6	3
14. Industry Strength Assessment
a. Declining Industry Not Expected to Recover	0
b. Industry Growing Moderately (faster than inflation)	2
c. Dynamic Industry With Broad Rapid Growth Likely	4	2
15. Environmental Risk Assessment
a. Produces/Uses Hazardous Substances Subject to Regulations and/or Licensing	0
b. Minimal Amounts of Hazardous Materials Involved and All Regulations and Licensing are Met	2
c. No Hazardous Materials Used/Produced in the Business	4	1
16. New Owner Social Desirability Assessment
a. No Community Prestige/Rough or Unpleasant Product/Service	0
b. Respected Business in Satisfactory Environment	2
c. Highly Regarded Business in an Attractive Environment	4	2
17. Alternative Investment Returns
a. High Rate of Return on Typically Safe Investments	0
b. Moderate Rate of Return on Typically Safe Investments	2
c. Low Rate of Return on Typically Safe Investments	4	2
18. General Broad Economic Conditions
a. The General Economy is in a Severe Recession	0
b. The General Economy is in a Typically Normal Condition	2
c. The General Economy is in a Strong Expansion	4	2

Total Score for all Risk factors	49
Capitalization Rate	31%
Capitalization Rate Converted to a Multiplier	3.27

Section 3

Valuation Calculation

Valuation Calculation

Central States Supply
132 Industrial Park Road
Bowling Green, Kentucky 42101

This data is "as of" December 31, 2007

Preliminary Business Valuation = ACF x Multiplier

	Available Cash Flow	$689,520
	Multiplier	3.27

	Preliminary Value	$2,254,730





	Add: Preliminary Value:	$2,254,730
	Add: Cash and Equivalents	$212,734
	Add: Accounts Receivable	$418,494
	Add: Pre-paid Expenses	$0
	Add: Inventory	$544,750
	Add: Other Assets Value	$0
	Add: Real Estate Value	$0
	Subtract: Liabilities	$517,974

	Business Valuation	$2,912,734

Section 4

Business Valuation Summary

Business Valuation Summary

Central States Supply
132 Industrial Park Road
Bowling Green, Kentucky 42101

This data is "as of" December 31, 2007

	Prepared By:	Russell L. Brown
	Preparer's Street Address	291 Main Street
	Preparer's City/State/Zip Code	Niantic, CT 06357
	Preparer's Relationship to the business:	Business Appraiser
	3-Year Weighted-Average Available Cash Flow:	$689,520
	Capitalization Rate:	31%
	Capitalization Multiplier:	3.27
	Preliminary Business Value:	$2,254,730
	Liquidation Value of F/F/E:	$375,000
	Current Assets to be Conveyed in the Sale:
	Cash and Equivalents	$212,734
	Accounts Receivable	$418,494
	Pre-paid Expenses	$0
	Inventory	$544,750
	Other Assets Value	$0
	Real Estate Value	$0
	Liabilities to be Assumed:	$517,974
	Goodwill Value:	$1,879,730
	Business Valuation:	$2,912,734
	Business Valuation As Of:	December 31, 2007

Section 5

Buyer & Seller Purchase & Sale Analysis

Buyer's Estimated Cash Requirements

Central States Supply
132 Industrial Park Road
Bowling Green, Kentucky 42101

This data is "as of" December 31, 2007

Business Purchase Price

$2,912,734

Add: Starting Operating Capital

$219,223

Add: Professional Fees and Closing Adjustments

$24,100

Total Cash Requirement Before Financing

$3,156,057

Down Payment

$1,456,367

Amount to Be Financed - Seller

$1,456,367

Amount to Be Financed - Other

Amount to Be Financed - Total

$1,456,367

Total Estimated Cash Required

$1,699,690

Total Cash Deposit

$200,000

Total Cash Required at Closing

$1,499,690

Professional Fees and Closing Adjustments Worksheet

Add
Attorney Fees	$5,000
Accountant Fees	$2,500
Brokerage Fees (finder's fee)	$0
Inventory Adjustment Service	$1,500
Pre-paids (Insurance, Utilities, Rent, Taxes, etc.) Adjustment (up)	$3,000
Deposits (Utilities, Lease, etc.)	$4,000
Licenses and Permits	$0
Inventory Adjustment (up)	$10,500
Accounts Receivable Adjustment (up)	$0

Total (Add)	$29,000

Deduct
Pre-paids (Insurance, Utilities, Rent, Taxes, etc.) Adjustment (down)	$0
Inventory Adjustment (down)	$0
Accounts Receivable Adjustment (down)	$3,500
Other	$1,400

Total (Deduct)	$4,900

Total Fees and Closing Adjustments

$24,100

Buyer's Estimated Return on Investment (ROI)

Central States Supply
132 Industrial Park Road
Bowling Green, Kentucky 42101

This data is "as of" December 31, 2007

	Weighted Average Available Cash Flow (ACF)	$689,520
	Trend Adjusted ACF	$848,848
	Latest Year's ACF	$770,779

	Projected ACF (for the first year after purchase)	$848,848

	Estimated Income Taxes
	Federal	$169,770
	State	$42,442
	Local	$0

	Total Estimated Income Taxes	$0

	Projected ACF After Taxes	$636,636
	Estimated Total F/F/E Depreciation	$49,667
	Buyer's Estimated Cash Required	$1,449,166

	Projected Cash-on-Cash Return (ROI)	43.9%
	Overall Investment (ROI)	40.5%

Buyer's Estimated Financing and ACF

Central States Supply
132 Industrial Park Road
Bowling Green, Kentucky 42101

This data is "as of" December 31, 2007

Business Purchase Price

$2,912,734

Total Purchase Cash Required (all fees and capital needs)

$3,156,057

Total Amount to Be Financed

$1,456,367

Seller - Financing Amount

$1,456,367

Interest
Rate:

9.00%

Term
(months):

Payment
(monthly):

$30,232

Other - Financing Amount

Interest
Rate:

12.00%

Term
(months):

Payment
(monthly):

Total Financing Payments Monthly/Annual

$30,232/$362,781

Projected ACF (for the first year after purchase) Monthly/Annual

$70,737/$848,848

Projected ACF (after estimated income taxes) Monthly/Annual

$53,053/$636,636

Projected ACF (after financing and estimated income taxes) Monthly/Annual

$22,821/$273,855

Seller's Estimated Cash-Out and Sale Financing

Central States Supply
132 Industrial Park Road
Bowling Green, Kentucky 42101

This data is "as of" December 31, 2007

Business Valuation (calculated amount)

$2,912,734

Business Sale Price

$2,912,734

Add: Cash Down Payment

$1,000,000

Add: Selling Expenses and Payoffs

$258,500

Subtract: Buyer Closing Adjustments

$215,800

Total Cash Out at Closing

$957,300

Amount to be Financed

$1,912,734

Interest
Rate:

10.00%

Term
(months):

Payment
(monthly):

$40,640

Total of All Monthly Payments

$2,438,397

Total Overall Cash Out (before income taxes)

$3,395,697

Estimated Taxes Related to the Business Sale

25.00%

Total Overall Cash Out (after estimated income taxes)

$2,667,513

Seller's Estimated Cash-Out and Sale Financing
Worksheets

Central States Supply
132 Industrial Park Road
Bowling Green, Kentucky 42101

This data is "as of" December 31, 2007

Selling Expenses and Payoffs Worksheet

Selling Expenses
Attorney Fees	$5,000
Accountant Fees	$2,000
Brokerage Fees	$175,000
Conveyance Taxes	$29,000
Inventory Adjustment Service	$1,500
Miscellaneous Closing Fees	$2,500
Other *	$1,000

Total Selling Expenses	$216,000

Pay-Offs
Equipment Loans and/or Leases	$22,000
Receivable Financing	$0
Accounts Payable	$16,000
Bank Financing	$0
Long and Short Term Loans	$0
Inventory Adjustment (down)	$4,500
Accounts Receivable Adjustment (down)	$0
Other *	$0

Total Pay-Offs	$42,500

Total Selling Expenses and Pay-Offs

$216,000

Buyer Closing Adjustments Worksheet

Deposits	$200,000
Inventory Adjustment (up)	$0
Accounts Receivable Adjustment (up)	$3,000
Prorated Rent	$4,000
Prorated Insurance	$3,500
Prorated Taxes	$1,500
Other *	$1,600

Total Buyer Adjustments

$213,600