morgan & westfield sample selling memorandum

MORGAN & WESTFIELD ________________________________________________________________________

CONFIDENTIAL Business Opportunity Summary

World of Shades, Inc. Los Angeles, CA

World Of Shades, Inc.

This Confidential Document may not be reproduced without the prior express written permission of Morgan & Westfield

2

Notice of Confidentiality The information presented in this document is highly sensitive and confidential and is for use only by those who have signed a Confidentiality Agreement for the purpose of considering the business described herein for acquisition. The information presented in this confidential business opportunity summary shall be treated as secret and confidential, and no part of it shall be disclosed to others, except as provided in a signed confidentiality agreement. The confidential business summary cannot be reproduced, duplicated, or revealed, in whole or in part, or used in any other manner without prior written permission from Morgan and Westfield. Should there be no interest in the business as an acquisition, the confidential business opportunity summary and other additional information provided concerning the client company, shall be promptly returned to Morgan and Westfield at the address listed. No correspondence or communication of any form to the company, its owners, stockholders, employees or professional services shall occur until such time that prior permission is granted by Morgan and Westfield. Such permission will specify the person for contact. All correspondence shall be directed to Morgan and Westfield. All contacts and showings are to be arranged through Morgan and Westfield by appointment only. Under no circumstances is the management or employees of the Client Company to be contacted directly.

Offered by:

Morgan & Westfield 4195 Chino Hills Pkwy #510

Chino Hills, CA 91709 909-248-0876 | 909-248-0877 | F 800-948-5206

[email protected] www.morganandwestfield.com



3

World of Shades You’ll never shop for shades anywhere else

Los Angeles, California Price: $2,300,000

Including $175,000 in Inventory, $100,000 in accounts receivable, and $30,000 in work-in-progress

50% down and the balance financed over 7 years at 8% interest rate

Summary: Since 1985, World of Shades, Inc. has grown from a small home-

based business into one of the largest independent window-covering retailers in Los Angeles. With over 100,000 satisfied customers, World of Shades, Inc. products cover the windows of thousands of homes in the Los Angeles area. World of Shades, Inc. can accommodate any home with styles ranging from the simplest to the latest in window decoration.

World of Shades, Inc. specializes in blinds, shutters, drapery,

motorized window coverings, solar screens, and window tinting. Not only does World of Shades, Inc. carry the top brands, but they also manufacture the most popular treatments in-house accommodating any budget. World of Shades, Inc. stands behind all of their products with a limited lifetime warranty. In addition, World of Shades, Inc. has the lowest warranty call back in the industry. As a wholesaler and retailer with a 15,475 square foot factory and showroom, World of Shades, Inc. sells thousands of window coverings per month all across the Los Angeles valley.



4

Business Attributes: This outstanding business has the following attributes:

20+ Years in Business. On-site Manufacturing Facilities High Margins Long-term, Repeat Customers Increasing Sales and Profit Trend Established Systems Established Customer Base Excellent systems make absentee ownership possible

The Market: The Los Angeles market is one of the largest in the nation. The Los Angeles valley also enjoys one of the lowest unemployment rates in the nation.

World of Shades, Inc. has positioned itself to capitalize on the

future growth of this market by building alliances with national builders and large commercial developers. Due to the high level of heat in Los Angeles, window coverings are in high demand and mandatory for every home. Window treatments keep the home cool but also protect the interior furnishings, style the home, and provide privacy.

The vendors and manufacturers have historically controlled the

market. They have a reputation of poor customer service and unreliability. Since World of Shades, Inc. manufactures their own product, this concern is not a threat and prevents others from entering the industry. World of Shades, Inc. can also expand the company by manufacturing for other retailers in the industry.

A new trend has emerged with the conversion of apartments and

other properties to condominiums, and the addition of mid-rises and towers. All of these units need window coverings and the contracts for these projects can be extremely large. This trend increases the number of units per acre generating an enormous potential for growth. World of Shades, Inc. currently has over $ 1,000,000.00 contracted with Los Angeles’ largest builders. Builders have fully embraced the idea of selling window coverings, realizing profits on the options as the profits on their homes have decreased as land costs have increased. In an effort to edge the competition, some builders are making window coverings mandatory and are building it into the price of the home. This only reinforces World of Shades, Inc. market share as they are

World

This

Busin

Of Shades, Inc.

s Confidenti

Los AOra

San BeRive

San Diego a

ness History

ial Documenpe

contracdoes othe hom

Market ngeles Coun

ange County rardino Courside County

and surround

y: World idea. Twere acommostart s

nt may not bermission of

cted with almothers soon mes are alre

Mar

nty

unty y

ding area

Figure

of Shades, The owner wasking for on request wmall and or

be reproducef Morgan &

5

most all of thfollow, virtuady covered

rket Area Ser% of Gros

52%20%18%5%5%

1Markets Serv

Inc. started was selling referrals of

was for windrder from a

ed without thWestfield

he largest buually elimin

d prior to clo

rved ss Sales % % %

% %

ved

in 1985 withreal estate

f products fdow coveringa local vend

he prior exp

uilders and anating the cose of escrow

Market se1919191920

h one personand many o

for their hogs. The own

dor. The ow

press written

as one buildeompetition a

w.

erved since 985 990 993 995 001

n and a granof his clientome. A verner decided twner quit rea

n

er as

nd ts ry to al



6

estate in 1988 and went full time into the industry. He has expanded the company over the years from hard work, honesty, and integrity, which have brought him a lot of referrals. He started manufacturing his own product in the end of 2004 after wanting independence from the vendors to better serve his clients. The most rapid growth has been in the last 3 years since he started manufacturing his own products.

Operating Times: This store is open seven days per week as follows:

DAYS OPEN CLOSE Monday – Friday 8:00 am 4:00 pm Saturday - Sunday Appointment only Appointment only

The owner currently works less than a forty hour work week.

Previously, he worked 20 hours per week and had a full-time sales manager.

Type of Entity: There are two entities. World of Shades, Inc., the

retailer/wholesaler, is a Delaware Limited Liability Company formed in 2003. Xexum, Inc. the manufacturing company, is also a Delaware Limited Liability Company formed in 2005. The financial statements have been consolidated into the attached Financial model to simplify the valuation as if it were one entity.

For all practical purposes, the business is one company. Xexum, Inc. (World of Shades, Inc. Manufacturing and Trucking), a separate identity was established to assist in future growth. It would enable other retailers to purchase products without feeling as if they were buying from the competition and give the company more of a manufacturing feel as opposed to a retail company.

Licensing Requirements: World of Shades, Inc. has a business license for each county it

operates in. A tax resale license is also required. No contractor’s license is required. This should reduce the amount of time required to close on the transaction.

Product/Service: Average Sale - $2,200

World of Shades, Inc. makes and sells window coverings for only the interior of the home. This makes it easy for the installers who can work inside the home and not outside in the heat. The products are used in any type of residence including houses, apartments, and condos. The average sale in 2006 was $2,200.00. It is estimated that this has increased slightly, perhaps to $2,400.00 for 2007.

World

This

Cust

Of Shades, Inc.

s Confidenti

omers:

ial Documenpe

All oth

ProShades Shutters Other

95% oApprobuilderbuilderprojectrevenuthe comarginthe cocalled finisheThis isin the World employpick tstandaThe toShadesapprox

nt may not bermission of

XexShadoemanprovertsomveryservare amowhibuy

her products

oduct Type

of World of ximately 65rs. World ors as well asts contain up

ue per commontracts canns. As discust of windowa “Standard

ed home for s a new tren

developmenof Shades,

yees at the the right prrd option is

op customer s, Inc. reveximately 10

be reproducef Morgan &

7

xum, Inc., tades, Inc., ones not sell nufactures tducts to minticals, 2” F

me motorizaty high, and vice calls. S

manufactuount of invich minimizyer needs to

are ordered

Produ

454015

Shades, Inc% of World

of Shades, Is builders of p to 500 hom

munity. Buildn be very ussed earlier,w coverings

d Option”. Tone price;

d with the ant gets windInc.. World

builders “deroduct for tto present it only repres

enues and 0% of reven

ed without thWestfield

the manufacnly sells to Wto other retthe most ponimize operaFaux Wood,tion. Marginthey are low

Since only thured in-houventory that es the amouoperate the c

directly from

uct Mix:

5% 0% 5%

c. business isof Shades, I

Inc. works wf apartments mes and canders make thlarge and

, many of ths into the prThe customeall options a

advantage bedow coverind of Shadesesign centertheir home.as an option

sents approxthe top thrnues. 90%

he prior exp

cturing arm World of Shatailers. Xex

opular and cating expens, 2” Wood ns on these w maintenan

he most popse, this mmust be k

unt of workincompany.

m vendors.

% of Total

s from new Inc. busineswith 28 maand condos

n bring in $2he ideal custo

long-term he builders arice of the hr is offered are includedeing that EVngs = more , Inc. places

rs” to help t The alternn to the homximately 5%ree customeof the bui

press written

of World oades, Inc. an

xum,Inc. onlcost effectivses including

Blinds, anproducts ar

nce with fewular product

minimizes thkept on hanng capital th

constructions comes fromin residentia. Some of th200,000.00 iomer becauswith health

are packaginhome. This ia completel

d in the priceVERY HOM

business fos some of itthe customernative to th

meowner. % of World o

ers represenilders sign

n

of nd ly ve g: nd re w ts

he nd he

n. m al he in se hy ng is ly e. E or ts rs he

of nt a



8

contract with World of Shades, Inc. which typically lasts until the completion of the development.

Top 5 Customers as a % of Total Sales Builder #1 5% Builder #2 3% Builder #3 2% Builder #4 2% Builder #5 2%

Marketing: World of Shades, Inc. spent less than 1% of its total revenue on

advertising in 2006. $16,200.00 was spent on billboard advertising in 2006 that brought in very little business. This program will not be repeated and should result in $16,200.00 more cash flow to the buyer in 2007. This expense was not adjusted for in the Price Point Valuation and was left in place.

The owner has found that the price of the “Yellow Pages” ad did

not justify the investment. Most of World of Shades, Inc. business comes from referrals and from builders. The owner sells directly to the large builders, thus reducing the commissions he has to pay out to salespeople. Most of the leads that are given to the salespeople are generated from previous clients and real estate agents.

Referrals, 40%

Sales People, 30%

Repeat Business, 25%

Misc., 5%

Where does new business come from?



9

Staffing and Payroll:

During 2006, total employee payroll/commission expense was $432,589.00, minus Officer’s Salary of $28,000 or an average of $33,715 per month, or an average of 8.45% of total revenue. The owner’s salary is not listed separately on the financial statement but is included in line item – “Payroll Wages-Office”. There are currently 27 employees including one owner. The owner currently manages the business and sells to builders. In 2006, the owner worked very little allowing the manager to run the company. Xexum,Inc. has 13 employees, all of which are involved in the manufacturing and production of window coverings. Xexum,Inc. has a full time manager and all employees are cross-trained. There is one shift from 8 a.m. – 4 p.m. with a thirty-minute lunch. The employees in XEXUM,INC. are paid between $6.00 and $12.00 an hour. Turnover in XEXUM,INC. is very low. World of Shades, Inc. has 14 employees including the owner. The owner manages the company and closes the big accounts with the builders. There is one bookkeeper and one controller who keep the books for both companies. The bookkeeper is paid $12.00 an hour and does billing and collecting and also scheduling for the installers and has been with the company for four months. The controller, central to the company, is paid $55,000.00 a year, and has been with the company for over 2 years. 6 of the employees are salespeople paid on straight commission with no salary or draw. All of the sales are handled outside, typically at the customer’s home or at the builders design center. The salespeople come to the office to complete their paperwork. Their commission is based on the gross profit of the job, not the selling price so the salespeople are encouraged to maximize profits. The salespeople have a quota of 12 jobs per month and have the opportunity to make $60,000.00 to $70,000.00 per year. The commission is 35% of gross profit if the lead is generated by World of Shades, Inc. and 50% of gross profit if the lead is generated by the salesperson. Sales meetings used to be mandatory if the quota was not met, but now all salespeople have been meeting their quotas so sales meetings are on an as needed basis. There are also 5 full-time installers, employed with the company for several years. The installers use a truck and trailer to deliver



10

and install the product. The installers are paid a set amount per window, not a % of the job.

Competition: World of Shades, Inc. has established itself in the market with its

strong belief in customer service. World of Shades, Inc. is contracted with some of the largest builders in Los Angeles and has been for years. This enables World of Shades, Inc. to cover the windows prior to close of escrow thereby eliminating all competition. This relationship also increases World of Shades, Inc. position in the market, as it is easier to obtain clients with healthy referral list.

Technology QuickBooks is used to manage the books. All customers and sales

are closely managed by the owner using Microsoft Excel. Software is also used in XEXUM, INC. to manage the cutting of the product. Product can also be ordered online directly from the vendors. The business includes 8 networked computers with monitors.

Location: World of Shades, Inc. and XEXUM,INC. were located in a 10,000

square foot facility but have been moved to a new facility with a smaller showroom in an Industrial Park. There is a 300 square foot showroom, 4-5 private offices, and a warehouse. The rent at the old location started at $4,800.00 but has increased along with the CAM’s over the years to $8,800.00 per month and has motivated the owner to move to a more cost effective location. The move will save the new owner $32,000.00 in rent without affecting revenue. The business is not location dependent as it gets no walk in business and all salespeople call directly to the customers.

Some of World of Shades, Inc. employees are also working inside

of 3 of the builders design centers. There is no rent charged for this arrangement. There is also one sales center located inside of a carpet store at a rent of $2,000.00 per month. This is located on the Profit and Loss Statement under the heading: This design center is in the largest carpet retailer in Los Angeles and both companies work hand in hand establishing new contacts.

95%-98% of World of Shades, Inc. business occurs in the Los Angeles valley with the remainder in parts of California and Southern Nevada. These jobs are done only for past clients.



11

Lease: The business occupies a 6,475 square foot building. It is located on

a 16,079 square foot parcel of land. The monthly base rent is $5,301.00 plus monthly CAM of $744.00 for a total monthly rent of $6,054.00 or $.94 per square foot, based on the building space. The base rent will increase 3% per year. The current lease term concludes in 2010; and there is one 3-year option to renew. The lease is assignable. The security deposit is $8,000.00. The property is family owned, and the landlord owns the whole complex. The business owner researched the property heavily before committing to the move.

The offices are cooled with air-conditioning and the warehouse is cooled using swamp coolers to minimize utility bills. It is estimated that the sales could be doubled in the same location. A second production shift could be added and even a third if necessary.

Adjacent Uses: Light Industrial: Machine shop, T-shirt company.

Furniture, Fixtures, and Equipment: The business is a completely furnished and functioning business; it

is completely turnkey. All of the hard assets of the business are included in the price. These include all furniture, fixtures, and equipment. As of December 31, 2006, the current book (depreciated) value of fixed assets, excluding current assets such as accounts receivable and inventory, was only about $16,144.00 and



12

accumulated depreciation was $37,814.00. Replacement value would be far greater. The new owner should be able to allocate a significant portion of the purchase price to hard, depreciable assets, thus sheltering some of the future profits of the business.

Vehicles and Trailers: 2003 Toyota Truck – 70,000 miles, Market Value $8,000.00

3 2005 10ft’ Trailers – fully logo’d and custom painted; $2,500.00 each, excellent condition, stored inside.

1 2005 15ft’ x 5ft’ fully enclosed trailer-custom painted $4,500.00. It is estimated that to keep the equipment in good repair, a new

owner would have to spend approximately $5,000.00 per year. Suppliers: XEXUM, INC. supplies over 50% of what World of Shades, Inc.

sells. The product can be manufactured and ready for installation in 2 days.

On average, it takes two weeks to receive the product from the vendors. It takes 6 weeks for shutters. Most of the vendors are located in Los Angeles and order the product from overseas and wholesale it here in the United States. World of Shades, Inc. works with approximately 12 vendors, and most have Net 30 day terms with a discount for early payment.

Inventory: This business maintains $150,000.00 to $200,000.00 in inventory

at any one time. In 2006, total COGS were 74% of sales. At year’s end, there was $176,083.00 in inventory. Thus, the average annual inventory turnover rate is estimated to be 20.50 times, or approximately 17.8 days.

The price includes $175,000.00 in inventory, at cost. The price

would be adjusted depending on the actual inventory on hand at the close of escrow. The Seller would liquidate any inventory deemed to be “obsolete” prior to the close, if any.

All inventory is shown on the XEXUM, INC. Balance Sheet.

World of Shades, Inc. Balance Sheet shows no inventory. Work in Progress: ALL WORK IN PROGRESS, SALES ORDERS AND BUILDER

CONTRACTS ARE INCLUDED IN THE SALES PRICE.

Definition: Works in Progress are jobs that have been prepaid and awaiting installation, currently $40,000.00



13

Definition: Sales Orders are open contracts; waiting to order the materials, currently $500,000.00 Definition: Builder Contracts are contracts for communities, currently over $1,000,000.00. These are for communities that are going to be build, some contracts are for window coverings in every home, for other contracts it is optional to the consumer but usually purchased.

Sales Process: The customer calls in and the receptionist answers the telephone

and then forwards the call to a sales rep. The sales rep’s objective is to schedule an appointment and does a brief interview and pre-qualification on the phone. The product can be sold with just floor plans or the rep goes to the homeowner’s house. The product is sold and the contract is drawn up and the design (very simple, two dimensions are needed) is handled by the salesperson. The product is then ordered either from XEXUM, INC. or a vendor. The jobs are prioritized according to how soon the job needs to be done.

Listed on the order is the dollar amount of the job, costs, profit,

and commission. The order is sent to the owner for final approval. (4-5 orders per day on average)

An installation sheet is next drawn up including: customer

information, closing time, job information. The receptionist schedules an appointment with the customer and also with the installer. The job is then sent to the installers’ boxes, called “weekly jobs” and logged into the installers’ calendar. The job is then installed and the installer calls the receptionist with the status – complete, not complete; and the installer picks up the payment. The job then goes to the bookkeepers’ box where it is entered into Excel, QuickBooks, and saved alphabetically in a filing cabinet.

Accounts Receivable and Payable: ALL ACCOUNTS RECEIVABLE ARE INCLUDED IN THE

SALES PRICE. THE BUYER MUST PAY THE ACCOUNTS PAYABLE AT CLOSING, WITH A MAXIMUM OF $30,000.00. Accounts receivable as of the writing of this report was $94,000.00; of which $66,000.00 is due from builders and $28,000.00 is due from homeowners. The aging of the A/R is very healthy with the majority paying within the allotted time frame or within 60 days. Very few are deemed uncollectible. The sales price will include all accounts receivable with a minimum of $50,000.00 included in the price at time of closing. Accounts payable was zero at time of report.



14

Few sales are cash sales. Most homeowners pay with a credit card or wrap the cost into their construction loan. For the homeowner, the full balance is due upon completion of installation. For builders, the terms are NET 30 after the job is complete with no discount offered for early payment. The contract for the sale is one page. Bad Debt Expense for 2006 was only $4,914.00 and only $128.00 in 2005. World of Shades, Inc. has to pursue on average 2-3 collections per year; which are less than $5,000.00. World of Shades, Inc. has never lost a collection, and has minimum bad debt expense.

Utility Expenses: During 2006, utility expenses averaged $350.00 per month or

.0009% of sales. The utilities are expected to decrease for 2007 as a result of the move to the smaller facility.

Insurance World of Shades, Inc. carries a $1 million dollar liability policy. Cost of Sales: During 2006, the cost of goods sold averaged 72.19% of sales. Sales Trends: World of Shades, Inc. is poised to do well over $5.5 million in

sales in 2007. The company should be much more profitable than in 2006 because expenses have been trimmed.

$‐

$1,000,000.00

$2,000,000.00

$3,000,000.00

$4,000,000.00

$5,000,000.00

$6,000,000.00

2004 2005 2006 2007 Projected

Annual Revenues

Revenues



15

Seller’s Discretionary Earnings is Defined as:

1. Pre-tax business net profit. 2. Plus total compensation of a single owner operator. 3. Plus adjustments to all other working owner’s compensation to market rate. 4. Plus annual depreciation and amortization expenses (non-cash expenses). 5. Plus interest expense. 6. Plus non-recurring expenses. 7. Plus expenses not related to the business operations.

Improvement And Expansion Potential: The Seller believes that the Buyer could improve this business by

implementation of the following:

Hire more commissioned salespeople. Wholesale to other retailers. Increase advertising investment. Go after additional large accounts with builders. Open another office in Phoenix, Texas or Northern

California. World of Shades, Inc. current builders also build in these markets.

$‐

$100,000.00

$200,000.00

$300,000.00

$400,000.00

$500,000.00

$600,000.00

$700,000.00

$800,000.00

$900,000.00

2004 2005 2006 2008

Seller's Discretionary Earnings



16

Accounting Method: Books are kept in house using QuickBooks on a cash basis by the

bookkeeper and controller. They are also compiled by an outside accountant on an annual basis.

Financial Results: PricePoint©, a standard industry business valuation model, was

utilized to present the financial results of this business. The Seller’s profit/loss statement for 2006 is presented and will be provided for review during the Buyer’s due diligence along with month-to-month 2007 financials.

As shown, numerous adjustments had to be made in order to convert the Seller’s Profit and Loss, prepared for tax reporting purposes, to the actual cash flow of this business. This is not uncommon for small, privately owned retail businesses.

Adjustments are explained by the footnotes presented in the Price Point Valuation. The Seller, and its accountant, will be able to explain and provide supporting documentation to the Buyer during the due diligence process, for each adjustment. The net profit (“Seller’s Discretionary Earnings” or “SDE”) for this business, during 2006, was approximately $738,632 or 15.44% of sales.

Seller’s Debt: All assets will be delivered free and clear of liens and

encumbrances at the close of escrow, evidenced by a Bill of Sale. Reason for Sale: The owner would like to move to Orange County, California to

surf and fish and take it easy. He has other ideas for future business but needs time to pursue them. He may buy a small business but would like to realize the fruits of his 18 years of labor.

Buyer Qualifications: No background or direct industry experience is necessary to run

this company. The ideal buyer will have strong people and management skills and will spend his time calling on builder accounts and managing the sales force.

Asking Price and Terms: The Seller is offering the business for $2,300,000 with terms on a

case by case basis.



17

PricePoint© Valuation: PricePoint©, was also utilized to estimate the value of this

business. The valuation and other analyses, presented herein, assume that the Buyer will purchase this business using Seller Financing or an SBA Loan. As discussed previously, the Valuation presents the conversion from taxable profit and loss, to an approximation of the annualized cash flow. The Price Point analysis of the Key Factors was used to calculate an appropriate multiplier for this business. This multiplier was calculated to be approximately 2.82 times the current annual cash flow.

Cash Flow Sufficiency: The Valuation presents an analysis of cash flow the Buyer’s

perspective. This analysis assumes that the Buyer acquires the business with the following financing:

80% of the purchase price is borrowed from the Bank The Buyer pays the balance plus closing costs in cash at

closing.

Under this scenario, at asking price, including the inventory, the Buyer’s total annual debt service payments of principal and interest $291,789.00. This would provide debt coverage of approximately 2.5 times. Well over the 1.25 coverage ratio required by most lenders. If the new Owner realized only the same cash flow as the Seller realized during 2006, then the new owner would net $446,843, after servicing debt.

Return on Investment and Investment Recapture: The Valuation also presents an analysis of return on investment

and investment recapture period for this scenario. At asking price, with a total investment of $2,300,000; including closing costs and lease deposit, the new Owner would potentially realize first-year return on total investment of 19.0%. Thus, the total investment would be recaptured in approximately 63.3 months.

However, most owner/operators want to know the return they would receive based on the cash out of pocket (i.e. their “Cash on Cash” return). In this case, the Cash-On-Cash Return on Investment is approximately 86.5%, based on all the aforementioned assumptions. Thus, the cash investment would be recaptured in approximately 26 months.



18

Training: The Seller will provide 4 weeks of training to the new buyer, at 24 hours per week. Additional training/consulting is available from the Seller, if required, for an additional fee.

Non-Compete: The Seller will agree to a non-compete clause with the Buyer,

directly or indirectly, for a period of Ten (10) years within a thirty(30) mile radius of the business. This essentially protects the Buyer anywhere within the entire Las Vegas Valley.

Seller’s Disclosure Statement: A detailed Disclosure Statement, made by the Seller regarding this

business and the information presented herein, is presented. Disclaimer: Morgan and Westfield .has based this presentation and analysis

upon information supplied by the Seller and the Seller’s Disclosure Statement. Morgan and Westfield did not make an attempt to independently verify these representations, and, therefore, does not make any expressed nor implied warrantees as to the conclusions drawn. During the due diligence process, it is the responsibility of the Buyer, with the aid of an accountant and/or attorney, if necessary, to independently verify all representations which have been made.

Valuation and Most Probable Selling Price

World of Shades, Inc.

April 9, 2007

Type of Ownership: C Corporation

Source of Financial Information: Business Owner

The PricePoint pricing report is based on information furnished by the owner(s)/officer(s) of the business under review. Neither Jacob Orosz, nor Morgan and Westfield assumes responsibility for the accuracy or completeness of the information. Buyers should seek their own tax, accounting, and legal counsel, if they need assistance in understanding the methods employed and the conclusions drawn herein.

Prepared by Jacob E. Orosz


- 2 -

World of Shades Adjusted Income Statement

For the Year Ended December 2006

Income Gross Sales Other Income Total Income Cost of Goods Sold

Statement $

4,782,505 116,014

4,898,519

3,452,586

Adjustment $

0

10

29,058 2

Revised $

4,782,505 116,014

4,898,519

3,423,528

Gross Profit 1,445,933 29,058 1,474,991

Expenses Advertising Auto Bad Debt Computer Service Contributions Dues & Subscriptions Fuel Insurance Interest Expense Licenses & Permits Misc. Office Supplies Office Wages-1099 Payroll Expenses Payroll Taxes Payroll Wages-Office Postage & Delivery Printing & Reproduction Professional Fees Rent Repairs & Maintenance Surcharge Fees Taxes Telephone Uniforms Utilities Workers Compensation

35,045 24,722 4,914 7,082

550 2,535

10,375 106,200 112,197

2,981 857

22,660 87,876

249,123 86,613

202,787 923

4,502 8,392

111,096 16,905

970 8,011 1,375 3,345 5,973

17,380

21,914 3 22,800 4

0 0

550 5 2,535 6

10,375 7 65,508 8

112,197 9 0

857 10 14,860 11

33,000 18 0

7,800 12 78,000 13

0 0 0

21,914 14 2,000 15

0 0

1,375 16 3,345 17

0 0

13,131 1,922 4,914 7,082

0 0 0

40,692 0

2,981 0

7,800 54,876

249,123 78,813

124,787 923

4,502 8,392

89,182 14,905

970 8,011

0 0

5,973 17,380

Total Expenses 1,135,389 736,359 Net Profit / SDE (Before Taxes)

310,544

428,088

738,632


- 3 -

1 2006 Revenue booked in 2007 for tax purposes. 2 Installers no longer paid to measure, now performed by salespeople savings of $1,600. Personal construction expenses of log cabin, non business expense. 3 Golf sponsorship of friend $5000, One time lettering of trailers $914. Other - $16,000. 4 Owner's personal vehicle 5 Non-business expense. 6 Non-business expense. 7 Owner's personal vehicle expenses. 8 Dental insurance no longer covered for employees $1892. Owner's health insurance $3616. Life insurance and retirement plan a non business expense. 9 Would not accrue to new owner. 10 Non-business expense. 11 One-time purchase of showroom displays $13,300. Office supplies paid by salesmen $1,560. 12 Sales Manager's payroll taxes $4,800. Owner's payroll taxes $3,000. 13 Sales Manager's role -will accrue to owner $48,000. Owner's wages $30,000. 14 Rent reduced in new facilities by $2,790 per month. 15 Non-recurring expense. 16 Owner's personal cell phone. 17 Uniforms no longer paid for employees.


- 4 -

World of Shades Adjusted Income Statement

For the Year Ended December 2005

Income Gross Sales Other Income Total Income Cost of Goods Sold

Statement $

5,090,578 0

5,090,578

3,840,899

Adjustment $

0 0 0

250,470 1

Revised $

5,090,578 0

5,090,578

3,590,429

Gross Profit 1,249,679 250,470 1,500,149

Expenses Advertising Auto Bad Debt Computer Service Contributions Dues & Subscriptions Fuel Insurance Licenses & Permits Misc. Office Supplies Office Wages-1099 Payroll Expenses Payroll Taxes Payroll Wages-Office Postage & Delivery Printing & Reproduction Professional Fees Rent Repairs & Maintenance Depreciation Taxes Telephone Uniforms Utilities Workers Compensation

22,055 36,787

128 6,907 1,697 3,845 4,992

35,104 2,680 4,593

48,993 10,237

163,550 96,890

258,802 1,102 4,637 9,540

130,674 9,970 4,060 7,069 1,888 6,244 4,208 3,042

2,510 2 35,430 3

0 0

1,697 4 3,845 5 4,992 6 6,321 7

0 4,593 8 6,112 9

0 0

13,600 10 136,000 11

0 0 0

2,510 12 0 0 0

1,888 13 6,244 14

0 0

19,545 1,357

128 6,907

0 0 0

28,783 2,680

0 42,881 10,237

163,550 83,290

122,802 1,102 4,637 9,540

97,146 9,970 4,060 7,069

0 0

4,208 3,042

Total Expenses 879,694 622,934 Net Profit / SDE (Before Taxes)

169,985

476,212 646,197


- 5 -

1 $3800 - Installers no longer paid to measure, job now performed by salespeople. COGS from another unrelated business. 2 Non-Business Expense. 3 Owner's personal vehicle. 4 Non-business expense. 5 Non-business expense. 6 Owner's personal vehicle expenses. 7 Dental insurance no longer provided for employees $2705. Owner's health insurance $3616. 8 Non-business expense. 9 Office supplies paid by salesmen $6,112. 10 Sales Manager's payroll taxes $4,800. Friend's payroll taxes $2,800. Owner's payroll taxes $6,000. 11 Sales Manager duties assumed by owner $48,000. Excess wages paid to friend $28,000. Owner's salary $60,000. 12 Rent reduction in new facilities by $2,790 per month. 13 Owner's personal cell phone. 14 Uniforms no longer paid for employees.


- 6 -

World of Shades, Inc. Key Factor Analysis

Number of Years Business Has Operated:

Number of Years Owner Has Operated Business: Owner's Required Down Payment Percentage: Amount of Competition: Growth of Las Vegas: Number of buyers in the market.: Industry Trend: Location & Facilities: Marketability: Historical Profit Trend: Ease of Replication: Amount of Risk: Key Factor Multiplier:

19 19 50% 2.50 3.60 3.50 2.60 2.80 3.10 2.70 2.60 2.80 2.82


- 7 -

World of Shades, Inc. Adjusted Income Summary

2005 2006 Average Total Income $5,090,578 $4,898,519 $4,994,548 Cost of Goods $3,840,899 $3,435,142 $3,638,020 Gross Profit $1,269,131 $1,463,377 $1,366,254 Total Expenses $622,934 $724,745 $673,840 SDE $646,197 $738,632 $692,414


- 8 -

World of Shades Asking Price

2005 2006 Simple Average Seller’s Discretionary Earnings (SDE)

$646,197 $738,632 $692,415

SDE Weighting

20% 80%

50% Cash at Closing

50% Seller Carry Weighted Adjusted SDE

$720,145

Cash Flow Multiplier 2.82 Most Probable Selling Price Most Probable Selling Price, Rounded

$2,030,808

$2,030,000

Inventory on Hand at Closing, Valued at Cost, With Price Adjusted to Actual

$275,000

Most Probable Selling Price Rounded,Including Inventory, Valued at Cost $2,305,000

Price Comparables Including $275,000 in Inventory and Accounts Receivable

Multiple of SDE $2,255,399 Based on multiple of 2.75 Multiple of Gross Sales $2,272,819 Based on 40% of Annual Revenue.

World of Shades, Inc.Assuming SBA Financing

BOX OF "REALITY"BUSINESS PRICING ANALYSIS

Based on 2007

$4,782,505 Annual Gross Revenue

$738,632 Annual Adjusted Net Cash Flow From Operations

$650,000 Book Value of Assets/FFE at the End of the Period

$120,000 Accumulated Depreciation at the End of the Period

$175,000 Inventory as of the End of the Period

$0 Other

Annu PRICING SELLER'S ASKING PRICE: $2,300,000BASIS Assuming SBA Financing

LOW MIDDLE HIGH

1. Gross Sales:Annual Gross Revenue $4,782,505 $4,782,505 $4,782,505Percentage 40% 45% 50%

Implied Price of Business 1,913,002 2,152,127 2,391,253+ Inventory 175,000 175,000 175,000+ Other 0 0 0

Most Probable Selling Price $2,088,002 $2,327,127 $2,566,253

2. Book Value of Assets $650,000+ 50% of Accumulated Depr. 60,000+ Annual Adjusted Net C/F 738,632+ 50% Annual Adjusted Net C/F 369,316+ Inventory 175,000+ Other 0

Most Probable Selling Price $1,992,948

3. Net Cash Flow Multiplier:Annual Adjusted Net C/F $738,632 $738,632 $738,632Industry Standard Multiplier 2.50 2.75 3.00

Multiple of Cash Flow 1,846,580 2,031,238 2,215,896+ Inventory 175,000 175,000 175,000+ Other 0 0 0


ANALYSIS OF CASH FLOW MULTIPLIER KEY FACTORS & MOST PROBABLE SELLING PRICE

FACTOR ASSESSMENT

1. Number of Years Business Has Operated 192. Number of Years Owner Has Operated the Business 193. Owner's Required Down Payment Percentage 20%4. Amount of Competition in Market (0=Plenty, 4=None) 2.705. Growth of Las Vegas 3.606. Number of Buyers in the Market 3.307. Industry Growth Trend (0=Declining, 4=Growing) 2.708. Location and Facilities (0=Poor, 4=Excellent) 3.709. Marketability (0=Poor, 4=Excellent) 2.80

10. Historical Profit Trend (0=Low, 4=High) 2.8011. Ease of Business Replication (0=Easy, 4=Difficult) 3.2012. Amount of Risk (0=High, 4=Low) 3.10

Overall Weighted Average of Key Factors 2.880

Implied Price Based on Net Cash Flow Multiplier $2,127,260+ Inventory 175,000+ Other 0


World of Shades, Inc.Assuming SBA Financing

MPSPProposed Selling Price of the Business $1,925,000 $2,025,000 $2,125,000Inventory 175,000 175,000 175,000Other 0 0 0

Total Proposed Selling Price, Including Inventory $2,100,000 $2,200,000 $2,300,000Maximum Percentage Financed 80% 80% 80%Amount Financed $1,680,000 $1,760,000 $1,840,000

Loan Term Assumptions:Annual Interest Rate 8.00% 8.00% 8.00%Number of Years 10 10 10

Monthly Payments of Principal and Interest $20,383 $21,354 $22,324Annual Payments of Principal and Interest $244,596 $256,244 $267,891

SUMMARY OF ANNUAL CASH FLOW TO NEW OWNER

Cash Flow from the Business (based on prior period) $738,632 $738,632 $738,632Annual Loan Debt Service -244,596 -256,244 -267,891

Net Cash Flow to Owner After Debt Service $494,036 $482,388 $470,741

Number Times Debt Covered 3.0 2.9 2.8

SUMMARY OF NEW OWNER'S 1st YEAR RETURN ON INVESTMENTAFTER PAYMENTS OF PRINCIPAL & INTEREST

RETURN ON TOTAL INVESTMENT

Net Cash Flow to Owner After Debt Service $494,036 $482,388 $470,741New Owner's Investment:

Closing Costs Plus SBA Loan Points (2.25%) $47,800 $49,600 $51,400Total Purchase Price 2,100,000 2,200,000 2,300,000

New Owner's Total Investment $2,147,800 $2,249,600 $2,351,400

Return on Total Investment 23.0% 21.4% 20.0%

Months to Recapture Total Invested 52.2 56.0 59.9

RETURN ON CASH INVESTMENT

Net Cash Flow to Owner After Debt Service $494,036 $482,388 $470,741New Owner's Cash Investment (Excluding Working Capital):

Closing Costs Plus SBA Loan Points (2.25%) $47,800 $49,600 $51,400Cash Down Payment 420,000 440,000 460,000

Cash Invested By New Owner $467,800 $489,600 $511,400

Cash on Cash Return on Investment 105.6% 98.5% 92.0%

Months to Recapture Cash Invested 11.4 12.2 13.0

The above set forth information has been secured from the Seller. Morgan & Westfield, Inc. in noway guarantees the accuracy of such information, nor does it warrant any assumptions as true and correct.During the due diligence process, it is the responsibility of the Buyer, with the aid of an accountant and/or

attorney, if necessary, to independently verify all representations which have been made.

World of Shades, Inc.Assuming Seller Financing

BOX OF "REALITY"BUSINESS PRICING ANALYSIS

Based on 2007

$4,782,505 Annual Gross Revenue

$738,632 Annual Adjusted Net Cash Flow From Operations

$650,000 Book Value of Assets/FFE at the End of the Period

$120,000 Accumulated Depreciation at the End of the Period

$175,000 Inventory as of the End of the Period

$0 Other

PRICING SELLER'S ASKING PRICE: $2,300,000BASIS Assuming Seller Financing

LOW MIDDLE HIGH

1. Gross Sales:Annual Gross Revenue $4,782,505 $4,782,505 $4,782,505Percentage 40% 45% 50%

Implied Price of Business 1,913,002 2,152,127 2,391,253+ Inventory 175,000 175,000 175,000+ Other 0 0 0


2. Book Value of Assets $650,000+ 50% of Accumulated Depr. 60,000+ Annual Adjusted Net C/F 738,632+ 50% Annual Adjusted Net C/F 369,316+ Inventory 175,000+ Other 0


3. Net Cash Flow Multiplier:Annual Adjusted Net C/F $738,632 $738,632 $738,632Industry Standard Multiplier 2.50 2.75 3.00

Multiple of Cash Flow 1,846,580 2,031,238 2,215,896+ Inventory 175,000 175,000 175,000+ Other 0 0 0


ANALYSIS OF CASH FLOW MULTIPLIER KEY FACTORS & MOST PROBABLE SELLING PRICE

FACTOR ASSESSMENT

1. Number of Years Business Has Operated 192. Number of Years Owner Has Operated the Business 193. Owner's Required Down Payment Percentage 20%4. Amount of Competition in Market (0=Plenty, 4=None) 2.705. Growth of Las Vegas 3.606. Number of Buyers in the Market 3.307. Industry Growth Trend (0=Declining, 4=Growing) 2.708. Location and Facilities (0=Poor, 4=Excellent) 3.709. Marketability (0=Poor, 4=Excellent) 2.80

10. Historical Profit Trend (0=Low, 4=High) 2.8011. Ease of Business Replication (0=Easy, 4=Difficult) 3.2012. Amount of Risk (0=High, 4=Low) 3.10

Overall Weighted Average of Key Factors 2.880

Implied Price Based on Net Cash Flow Multiplier $2,127,260+ Inventory 175,000+ Other 0


World of Shades, Inc.Assuming Seller Financing

MPSPProposed Selling Price of the Business $1,925,000 $2,025,000 $2,125,000Inventory 175,000 175,000 175,000Other 0 0 0

Total Proposed Selling Price, Including Inventory $2,100,000 $2,200,000 $2,300,000Maximum Percentage Financed 50% 50% 50%Amount Financed $1,050,000 $1,100,000 $1,150,000

Loan Term Assumptions:Annual Interest Rate 8.00% 8.00% 8.00%Number of Years 6 6 6

Monthly Payments of Principal and Interest $18,410 $19,287 $20,163Annual Payments of Principal and Interest $220,919 $231,439 $241,959

SUMMARY OF ANNUAL CASH FLOW TO NEW OWNER

Cash Flow from the Business (based on prior period) $738,632 $738,632 $738,632Annual Debt Service -220,919 -231,439 -241,959

Net Cash Flow to Owner After Debt Service $517,713 $507,193 $496,673

Number Times Debt Covered 3.3 3.2 3.1

SUMMARY OF NEW OWNER'S 1st YEAR RETURN ON INVESTMENTAFTER PAYMENTS OF PRINCIPAL & INTEREST

RETURN ON TOTAL INVESTMENT

Net Cash Flow to Owner After Debt Service $517,713 $507,193 $496,673New Owner's Investment:

Closing Costs $10,000 $10,000 $10,000Total Purchase Price 2,100,000 2,200,000 2,300,000

New Owner's Total Investment $2,110,000 $2,210,000 $2,310,000

Return on Total Investment 24.5% 22.9% 21.5%

Months to Recapture Total Invested 48.9 52.3 55.8

RETURN ON CASH INVESTMENT

Net Cash Flow to Owner After Debt Service $517,713 $507,193 $496,673New Owner's Cash Investment (Excluding Working Capital):

Closing Costs $10,000 $10,000 $10,000Cash Down Payment 1,050,000 1,100,000 1,150,000

Cash Invested By New Owner $1,060,000 $1,110,000 $1,160,000

Cash on Cash Return on Investment 48.8% 45.7% 42.8%

Months to Recapture Cash Invested 24.6 26.3 28.0

The above set forth information has been secured from the Seller. Morgan & Westfield, Inc. in noway guarantees the accuracy of such information, nor does it warrant any assumptions as true and correct.During the due diligence process, it is the responsibility of the Buyer, with the aid of an accountant and/or

attorney, if necessary, to independently verify all representations which have been made.

Popular Small Business Capital, A Division of Banco Popular North America 9600 West Bryn Mawr Avenue, Rosemont, IL 60018

www.popularsmallbiz.com

July 15, 2007 Morgan & Westfield, Inc. 4195 Chino Hills Pkwy #510 Chino Hills, CA 91709 Subject: World of Shades Dear Jacob: I have had the opportunity to do a preliminary review of the cash flow recast that you provided to me on the subject business. Based on the historical numbers provided I would like to propose the following loan scenario for discussion: Loan Amount: $1,920,000 (80% of purchase price plus fees/costs) Loan Term: 10 years Loan Rate: 10%; Wall Street Journal Prime + 2.5% (subject to change) Monthly Payment: $25,372.94 Collateral: First lien on all business assets (All available personal assets from buyer, up to 100% of loan) Working Capital: A $100,000 Line of Credit was added to the project cost. (This figure may change and must be justified by a complete application.) The subject loan scenario was developed with a qualified borrower taking an annual salary of $150,000. This letter does not constitute a commitment from Popular Small Business Capital to finance the subject loan. This letter is for discussion purposes only. A complete loan application must be submitted from a qualified borrower and analyzed by Popular Small Business Capital. Thank you for the opportunity to assist you in financing the subject business. Sincerely, Tim Johnson Business Development Officer

morgan & westfield sample selling memorandum

Documents