Summit Valuation Advisors

Valuation of

Coastal Construction, Inc.

Valuation Date:12/31/2016 Report Dated :1/10/2017

TABLE OF CONTENTS

TRANSMITTAL LETTER ...... 2 INTRODUCTION ...... 3 COMPANY BACKGROUND ...... 5 ECONOMIC ANALYSIS ...... 7 INDUSTRY ANALYSIS ...... 9 FINANCIAL ANALYSIS ...... 10 INCOME STATEMENT ...... 10 BALANCE SHEET...... 11 STATEMENT OF CASH FLOWS ...... 12 SALES ANALYSIS ...... 13 COMMON SIZE STATEMENTS ...... 13 Income Statement Common Size ...... 13 Balance Sheet Common Size ...... 15 Ratio Analysis ...... 16 COMPANY PROFITABILITY ...... 18 VALUATION METHODS AND CONCLUSION ...... 18 THE INCOME APPROACH ...... 18 THE MARKET APPROACH ...... 20 THE ASSET APPROACH ...... 22 VALUATION ADJUSTMENTS ...... 23 DISCOUNT AND CAPITALIZATION RATES ...... 26 VALUATION CONCLUSION ...... 27 REPRESENTATIONS OF THE ANALYST ...... 28 APPENDICES...... 29 STATEMENT OF ASSUMPTIONS ...... 29 GLOSSARY OF TERMS ...... 32 VALUATION ANALYST CREDENTIALS ...... 41 HISTORICAL FINANCIALS...... 44

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840 Gessner Suite 350 Houston, Texas 77024 713-589-4406 January 10, 2017

Fred Jones 3011 Highway 30 W #101 Huntsville, TX 77840

Dear Mr. Jones,

I have performed a valuation engagement of Coastal Construction, Inc. as of 12/31/2016. The analysis and report were completed in accordance with the National Association of Certified Valuators and Analysts Professional Standards. This valuation uses fair market value to arrive at an estimated value. The resulting estimate of value should not be used for any other purpose or by any other party for any purpose. The estimate of value that results from a valuation engagement is expressed as a conclusion of value. The report date of this valuation is 1/10/2017.

ABC limiting conditions in the valuation of Coastal Construction, Inc. were that it was unable to physically inspect the fixed assets of the business. I relied upon the representations of management as to the descriptions of the assets and further relied upon management as to the amount of accounts receivable due at 12/31/2016.

Based on my analysis, as described in this valuation report, for the purpose of marital dissolution, the estimate of value of a 49% interest in Coastal Construction, Inc. as of 12/31/2016 and after applying discounts for lack of marketability and lack of control is $55,234 or $112.72 per share. This conclusion is subject to the Statement of Assumptions and Limiting Conditions found in Appendix A and to the Valuation Analyst's Representation found on page 29. I have no obligation to update this report or the conclusion of value for information that comes to my attention after the date of this report.

Sincerely,

David Sheives, CVA, CFE January 10, 2017

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Introduction

Summit Valuation Advisors, LLC was engaged by Fred Jones and his legal counsel to determine the fair market value (FMV) of 490 shares of the common stock of Coastal Construction, Inc. as of 12/31/2016. The purpose of this engagement is to assess the value for a marital dissolution of the minority shareholder, Fred Jones. The premise of value for this engagement is going-concern.

This assignment has adhered to the guidance set forth in the National Association of Certified Valuators and Analysts Professional Standards.

The definition of fair market value as set forth in Revenue Ruling 59-60 is as follows: "the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts." In compliance with the revenue ruling we have examined (a) The nature of the business and the history of the enterprise from its inception. (b) The economic outlook in general and the condition and outlook of the specific industry in particular. (c) The book value of the stock and the financial condition of the business. (d) The earning capacity of the company. (e) The dividend-paying capacity. (f) Whether or not the enterprise has goodwill or other intangible value. (g) Sales of the stock and the size of the block of stock to be valued. (h) The market price of stocks of corporations engaged in the same or a similar line of business having their stocks actively traded in a free and open market, either on an exchange or over-the-counter.

There are three primary bases for valuing a company: Going-Concern, Liquidation, and Orderly Disposition. A Going-Concern valuation refers to a company that has the resources to continue operation indefinitely; a Liquidation valuation refers to the value of a company if operations are ceased and the assets are sold off separately; an Orderly Disposition valuation assesses the value at which the asset or assets are sold over a reasonable period of time to maximize the proceeds received.

A site visit was performed on November 21, 2016. Interviews were conducted with the management team. The site was a small office used for executive functions only. The assets included in this valuation were either offsite in a warehouse or deployed at the time of the visit.

The three approaches that must be considered by a valuation analyst when valuing a Going- Concern include: 1. The Income Approach

2. The Market Approach

3. The Asset Approach There are several methods within each of the three approaches that a valuation analyst can utilize to determine the value of the subject company. However, it is up to the valuation analyst

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to use professional judgment in determining how to weight each of the approaches when preparing a detailed report.

The Income Approach

The Income Approach uses the historical and/or future cash flow stream generated by the subject company to determine its value.

The valuation analyst may determine an appropriate capitalization rate and capitalize a single historical period, or a weighted average of several historical periods, to get a value estimate. The valuation analyst may also establish an appropriate discount rate and discount a future benefit stream of the subject company as forecasted by the valuation analyst. This discounted approach assumes that the subject company is worth the present value of a series of income streams as determined by a multi-period forecast.

Market Approach

The Market Approach utilizes valuation multiples from publicly traded and privately held companies in the same, or similar, industry as the subject company.

The valuation analyst can use the current trading multiples of comparable companies to determine the applicable multiples for the subject company.

The other variation to this approach is to utilize previous sales of companies in the same, or similar, industry as the subject company. The valuation analyst can then apply the transaction multiples of comparable companies to the subject company and determine a value estimate.

The Asset Approach

The valuation analyst determines the value of each of the tangible assets, separately, and then adds them together to get a total company value. Alternatively, the valuation analyst can conduct an intangible asset valuation of his or her choice.

This valuation will be completed operating under the assumption that the subject company is a going-concern.

It is important to note that the valuation of a business is a balance between art and science; the professional judgment of the valuation analyst is an important part of this consideration.

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Company Background

Voting Common Voting Common Non-Voting Common Non-Voting Common First Name Last Name Shares Owned Shares(%) Shares Owned Shares(%) Fred Jones 490 49% -- 0% Tom Smith 510 51% 0%

History of the Company

Coastal Construction, Inc. is a C corporation in the state of Texas founded in 2002. The business was started by Fred Jones and Tom Smith. The company has 1000 shares of common stock. Original capitalization was $1000 as recorded on the balance sheet. The company has made no acquisitions and has remained owned by Mr. Jones and Mr. Smith since its inception. There have been no changes in the company stock since inception. In addition, there are no restrictions on the sale of the stock nor is there a buy/sell agreement in place. The company has no subsidiaries. No dividend payments have ever been made. Owner draws have occurred on an equal basis between the two owners. The SIC code for this company is 1521.

Description of Facilities

The company has a small leased warehouse on a well-traveled street located in Huntsville, Texas. The warehouse is used to store leftover materials and vehicles. Rent for the warehouse is $350 per month and is on a month to month basis. There was no impact from the lease on the valuation of the business. Administrative duties are performed by Mr. Jones and Mr. Smith at their respective home offices. There are no environmental issues with the warehouse since it is leased.

Organizational Structure

The company strictly uses sub-contractors to perform the operational activities of the company. Mr. Jones is the primary sales person and Vice President. Mr. Smith serves as President and construction supervisor. Executive duties are shared.

Management Team

The management team consists of Mr. Smith and Mr. Jones as President and Vice President respectively. Until the commencement of divorce proceedings Mrs. Jones worked part-time in the business for limited pay. Mr. Jones has assumed those responsibilities. There are no agreements in place with regard to a buy/sell agreement or management succession in the case of disablement or death by either partner. Mr. Jones and Mr. Smith receive no pay but do receive health insurance at a value of approximately $750 per month each. There are no other significant employee benefits. Neither Mr. Jones or Mr. Smith has a covenant not to compete should one or the other leave the company.

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Description of Equity Ownership Interests

The common stock of Coastal Construction, Inc. is owned by Fred Jones and Tom Smith with Smith owning 51% and Jones owning 49%. This information was taken from the tax returns supplied by management as well as the Franchise Tax Information reports filed yearly with the state of Texas. Articles of Incorporation were not available. There is no non-voting stock in the company. There are no related party transactions on the financial statements or disclosed by management.

Products/Services Offered

Coastal Construction, Inc. is in the specialty construction and remodeling business. The business specializes in adding features to private homes to assist disabled people as well as general contracting and remodeling. Typical services include walk in bath tubs, wall handles, widening of doorways and other wheelchair access services. In addition, standard home remodeling and some spec building is performed. Service differentiation is accomplished by speedy performance Coastal is known to accomplish their work in days rather than weeks and still provides a quality job. Materials used are of high quality and sourced from two major suppliers nearby.

Key Customers and Suppliers

Coastal works primarily with a small number of HMO's. These HMO's are funded by the Texas Department of Human Services. (TDHS) This state agency is funded by the Medicaid/Medicare program through the federal government. Coastal also works directly with homeowners on remodeling projects and some local developers on full construction projects. The bulk of Coastal Construction’s customers are repeat customers. There is a core group of HMO’s and builders that use Coastal Construction’s services. These number approximately twelve and as such present a customer concentration issue. Each of the 12 customers has a master contract with Coastal. The master contract is modified by an addendum each time a new job comes in.

Key Competition

Management informed me that key competition included XYZ Construction, ABC Construction and DEF Construction. Coastal is the smallest of the four competing companies in the HMO funded construction market. In the general construction side of the business Coastal competes with hundreds of larger and smaller construction companies in the Houston metro market. Coastal Construction’s small size and low overhead keeps costs lower than many competitors and serves the company well.

Business Sales Strategy and Risks

The business strategy consists of bidding RFP's as they come in. There is some face to face sales that have occurred over the years but the primary strategy is to bid work from established clients. The sales and bidding activities are the primary responsibility of Mr. Jones. The

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business has two primary risks. Customer concentration is a large risk as is the long- term viability of the Star Plus Waiver Program. The Star Plus Waiver Program is an initiative to lower medical care costs by providing safety related home improvements to the disabled. A second major risk is the key man component of the business. Mr. Jones is 67 years old and Mr. Smith is 63 years old. The loss of either of them would severely handicap the business.

Future Prospects

The future for the company is mixed. While the economic conditions in Houston affect the new construction component of the business, the HMO funded remodel work will remain steady. The company does face significant risk on the customer concentration and potential funding however. In addition, both major shareholders are older and could become unable to work in the near future.

Document Sources

Internal documents used to produce this report were the 2012 through 2015 1120-S tax returns as well as the internally prepared financial statements for 2016. External sources were the Edmunds Car Value Guide, the Mergerstat Control Premium Guide, the BizComps database, the Duff and Phelps U.S. Guide to Cost of Capital, the Salary.com database, the Pluris DLOM database, the Sageworks database and the First Research Industry Profile. Record Quality

The quality of the records produced by Coastal were average to below average. Accounts receivable records were hand written. I identified several general ledger entries that were incorrect. Vehicle purchase records were incomplete.

Economic Analysis

National: As it was for the past several months, the national economic picture in December was a mix of positive and negative news, although a few key indicators began to show a strong upsurge. In one of the more negative results, the U.S. economy continued to falter, with the U.S. Commerce Department reporting on January 27, in its first estimate for the fourth quarter of 2016, that growth in the U.S. Gross Domestic Product (GDP) was a weak 1.9%—well below the final estimate of 3.5% for the third-quarter growth rate. For 2016 as a whole, the economy was up by just 1.6%, down sharply from the already modest 2.6% growth clip in 2015. Likewise—in contrast to its stronger performance in November—the U.S. jobs market turned in disappointing results for December. Nonfarm payrolls grew by only 156,000 jobs on the month vs. an expected 178,000-jobs gain (although November’s 178,000 new-jobs figure was revised upward to 204,000). For all of 2016, 2.2 million jobs were added, a falloff of about half a million jobs from 2015’s total. The unemployment rate ticked up from 4.6% in November to 4.7% in December. Housing Slows. After having increased in November, U.S. single-family new-home sales in December fell by 10.4% from November’s totals to a seasonally adjusted annual rate of 536,000

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units. At the same time, after hitting a 10-year high in November, existing-home sales in December dropped by 2.8%, depressed by the lowest existing-housing supply since 1999. Housing starts, however, jumped by 11.3%, finishing their best year since 2007. Manufacturing sector expands again in December. After increasing in each month of September through November, economic activity in the U.S. manufacturing sector rose again in December, according to the Tempe-based Institute for Supply Management (ISM), a private trade group, in a January 2 report. The group’s index for December was 54.7%, an increase of 1 Construction spending hits highest level in 10-1/2 years. U.S construction spending rose more than expected in November, reaching its highest level in 10-1/2 years, the U.S. Commerce Department reported on January 3. Specifically, total construction spending across all sectors increased by 0.9% in November to 1.18 trillion, the measure’s highest level since April 2006. Economists polled by Reuters had expected only a 0.6% boost in spending. On a year-over- year basis, November’s construction spending was up by 4.1%. At the same time, October’s originally reported 0.5% climb was revised upward to 0.6%. percentage points from November’s 53.2% reading. Figures above 50.0% represent expansion, while those below 50.0% signify contraction. Notably, the index has now topped 50 for nine of the last ten months.

The Texas and Houston Metro Economy is entering a critical period in the first half of 2017 as the downdraft from the energy sector reset continues to roll through the state. Fortunately, to date, the drag on the overall state economy from reduced oil-field activity has not been as bad as we first thought. In July 2016, the state added 23,600 payroll jobs, still up 1.5 percent over the previous 12 months. The climb in oil prices from the February low of $27 per barrel for WTI, to above $50 by early June was a cause for optimism, but the oil market got ahead of itself, and WTI fell below $40 per barrel by early August. Recent gains, to near $48, are again invigorating the optimists. The drilling rig count for Texas has firmed from a low of 173 rigs in late May 2016 to 238 rigs through mid-August 2016. Also, we see that new orders for mining equipment increased through May and June, but this was up from April, which was the worst month in the history of that series, dating back to 1992. We still show a mild recession for Texas in our forecast for this year. We believe that by the end of this year, the Texas economy will stabilize and then expand consistently through 2017. This forecast is based on our assumption that oil prices are stabilizing, and will gradually increase through next year, supporting moderately stronger oil field activity. Houston is still struggling and the metro area accounts for a quarter of all jobs in Texas. Almost all economic metrics for Houston are still showing signs of stress. Job growth in June and July was modest, but positive, after a net loss in May. We expect Houston to struggle with weak net job growth through the remainder of this year and early into 2017.

Summary: Economic conditions as they affect Coastal Construction are mixed. While the national and local economies show improvement in most areas, the Houston metro economy as well as most of Texas are handicapped by reliance on the petrochemical industry. Job growth remains low overall due to the low prices of oil and gas. Coastal will continue to be affected for some period of time by these issues until late 2017.

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Industry Analysis

Coastal Construction, Inc. is a small company in the fairly small market of Hunstville, Texas. The company performs residential construction and remodeling. The SIC/NAICS Code for the company are 1521 and 236118. The company does however perform work throughout the gulf coast area including Houston. The Houston metro area has a population of 6.3 million making it the 5th largest metro area in the U.S. It is however affected by the general construction industry. General economic conditions have been improving, causing an increase in investment in residential construction, but this growth has been stunted by a short supply of labor and housing. Construction unemployment levels are returning to low levels, but the overall level of employment in the industry is depressed because the recession forced many firms and workers out of the market. A lack of workers has caused wages to increase as an input cost, but not to a detrimental level at this point. Tight labor conditions have caused pent-up demand for houses and, therefore, home prices have increased. These factors have led homebuilders to shift focus away from maximizing the number of homes built and sold. Instead, they are focusing on more easily controlled financial metrics such as growth rate, gross margins, average sale price (ASP), absorption rates, and SG&A. This sharply contrasts the rapid expansion that categorized the period leading up to the recession, indicating the market is poised for slow and steady long-term growth. Homebuilders purchased cheap land in the wake of the financial crisis. In recent years, firms have shifted away from aggressive land acquisition towards smaller projects with shorter turnover rates. Financial flexibility has become a key concern for major players in the industry who are not interested in tying up capital as the market emerges from its struggles. Companies are increasingly using call options as part of their land acquisition strategy. They pay a small amount to lock in prices, and then purchase lots as prices increase. This strategy allows home builders flexibility, while enabling them to react quickly to the market. Homebuilders are also focusing their attention to where demand is highest, particularly near urban areas with high job growth. As people move back into cities, closer-in and infill construction has become increasingly popular. In addition, people are concerned with the cost of housing. Rising ASPs have led people to choose what are typically considered entry-level homes. Between rising costs and the necessity for city proximity, rent-to-ownership rates have risen in recent years. As millennials age, however, they are expected to shift back to home ownership, representing an opportunity for expanded growth in the residential construction industry Coastal Construction itself has a niche market in the HMO funded disabled persons remodeling market. Barriers to entry into the market include voluminous amounts of red tape to qualify for the state funding required to operate in this area. Because of this there are few new market entrants. The company market share in the disability remodel market is approximately 33%. The market share that Coastal has in the standard residential construction business is extremely limited due to the number of residential construction companies in the Houston/Huntsville area. Building material suppliers in the Houston area are numerous and has such have limited bargaining power. Threats of new market entrants as well as the bargaining power of suppliers had no effect on the value of Coastal. Additionally, due to the fact that Coastal gets the bulk of it’s business through government funded programs, impact of the industry as a whole as well as local conditions have limited impact. The continuation of the government funded HMO programs could have an impact on Coastal Construction’s future however. At this time, the budget for the program remains robust for 2017 but with the recent change in administrations this could change.

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Financial Analysis

This financial analysis was created from company tax returns for the years 2012 through 2015. Internally prepared unaudited financial statements were used for the 2016 year. The company had steady revenue for the years 2012 through 2015 but experienced a substantial increase in 2016. Gross margins in the business have remained at approximately 20% which is below industry standards. I attribute this to the lower margins dictated by the government funded work that makes up a large part of the company’s revenue. The franchise tax threshold in Texas has not been reached for the purpose of this valuation. Other taxes were not considered due to the year over year losses after the normalization entries were made. I used the most recent full five-year period for the analysis as is standard in the valuation industry. Prior to conducting a detailed analysis of the Company's historical and current financial performance, we made the following adjustments to the Income Statement and Balance Sheet. Historical Non-Normalized Financials can be seen in Appendix D.

Normalized Income Statement

12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016

Sales (Income)

Total Sales (Income) $589,187 $698,555 $644,285 $584,974 $1,116,127 Cost of Sales (COGS)

Total Cost of Sales (COGS) $566,417 $601,700 $554,128 $473,358 $897,681 Gross Profit $22,770 $96,855 $90,157 $111,616 $218,446 Depreciation

Pre-Adjusted Depreciation 3,053 1,775 1,775 1,775 158,551 Normalizing Adjustment -3,053 -1,775 -1,775 -1,775 -158,551 Normalized Depreciation ------Overhead or S,G,& A Expenses

Pre-Adjusted Overhead or S,G,& A Expenses 33,448 50,914 17,944 70,442 79,967 ... Executive Compensation ------... Normalized Executive Compensation 90,000 90,000 90,000 60,000 60,000 Normalizing Adjustment 90,000 90,000 90,000 60,000 60,000 Normalized Overhead or S,G,& A Expenses $123,448 $140,914 $107,944 $129,292 $139,967 Other Operating Income

Pre-Adjusted Other Operating Income ------48,471 Normalizing Adjustment -48,471

Normalized Other Operating Income ------Other Operating Expenses

Total Other Operating Expenses ------Operating Profit -13,731 44,166 70,438 39,399 28,399 Normalizing Adjustment -86,947 -88,225 -88,225 -57,075 50,080 Normalized Operating Profit ($100,678) ($44,059) ($17,787) ($17,676) $78,479 Other Expenses

Net Profit Before Taxes

Net Profit Before Taxes -13,731 44,166 70,438 39,399 28,399 Normalizing Adjustment -86,947 -88,225 -88,225 -57,075 50,080 Normalized Net Profit Before Taxes ($100,678) ($44,059) ($17,787) ($17,676) $78,479

Net Income -13,731 44,166 70,438 39,399 28,399 Normalizing Adjustment -86,947 -88,225 -88,225 -57,075 50,080 Normalized Net Income ($100,678) ($44,059) ($17,787) ($17,676) $78,479

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Specific Comments for Income Statement Normalizing Adjustments

• Depreciation: Adjust depreciation to normalize to actual cash flow.

• Executive Compensation: There was no officer compensation for 2012 through 2014. In 2015 and 2016 officer compensation was recorded at $30,000. Similar positions in Huntsville, Texas show annual compensation at $45,000 for each manger. Normalizing adjustment to record officer/manager salary resulted in a $90,000 total salary adjustment. www.salary.com was used to justify the salary amount.

• Other Operating Income: Adjust for insurance settlement improperly recorded as income.

Normalized Balance Sheet

12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016

Cash (Bank Funds)

Total Cash (Bank Funds) -- -- $10,052 $951 $351 Accounts Receivable

Pre-Adjusted Accounts Receivable ------Normalizing Adjustment 74,000

Normalized Accounts Receivable ------$74,000 Other Current Assets

Total Other Current Assets ------Total Current Assets -- -- 10,052 951 351 Normalizing Adjustment 74,000

Normalized Total Current Assets -- -- $10,052 $951 $74,351 Gross Fixed Assets

Total Gross Fixed Assets $127,692 $127,692 $127,692 $127,692 $316,742 Normalizing Adjustment -159,729 Accumulated Depreciation

Total Accumulated Depreciation $69,806 $71,581 $73,356 $75,131 $233,682 Normalizing Adjustment -233,682 Net Fixed Assets

Net Fixed Assets $57,886 $56,111 $54,336 $52,561 $157,013 Total Other Assets ------Total Assets

Total Assets 57,886 56,111 64,388 53,512 157,013 Normalizing Adjustment 74,000

Normalized Total Assets $57,886 $56,111 $64,388 $53,512 $231,364 Accounts Payable

Total Accounts Payable ------Short Term Debt

Total Short Term Debt $55,092 $10,301 $3,540 $2,540 $4,040 Notes Payable / Current Portion of Long Term Debt

Pre-Adjusted Notes Payable / Current Portion of Long Term ------Debt Normalizing Adjustment 24,000

Normalized Notes Payable / Current Portion of Long Term ------$24,000 Debt Total Other Current Liabilities ------Total Current Liabilities 55,092 10,301 3,540 2,540 4,040

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Normalizing Adjustment 24,000

Normalized Total Current Liabilities $55,092 $10,301 $3,540 $2,540 $28,040 Other Long Term Liabilities

Total Other Long Term Liabilities ------Total Long Term Liabilities ------Total Liabilities 55,092 10,301 3,540 2,540 4,040 Normalizing Adjustment 24,000

Normalized Total Liabilities $55,092 $10,301 $3,540 $2,540 $28,040 Common Stock

Total Common Stock $1,000 $1,000 $1,000 $1,000 $1,000 Additional Paid-in Capital

Total Additional Paid-in Capital ------Ending Retained Earnings

Pre-Adjusted Ending Retained Earnings 1,794 44,810 59,848 49,972 78,371 Normalizing Adjustment 124,953

Normalized Ending Retained Earnings $1,794 $44,810 $59,848 $49,972 $203,324 Total Equity 2,794 45,810 60,848 50,972 79,371 Normalizing Adjustment 123,953

Normalized Total Equity $2,794 $45,810 $60,848 $50,972 $203,324 Total Liabilities + Equity $203,324

General Comments for Adjusted Balance Sheet

• Accounts Receivable: Adjust for year-end receivables. Number reported by management was $82,430. Reduced by 10% for non-collectability as per management expectation.

• Notes Payable / Current Portion of Long Term Debt: Adjust for note on 2016 Isuzu NPR Truck.

• Ending Retained Earnings: Adjust equity to account for other adjustments.

• Adjust prior year depreciation: Normalize assets to actual value. See work paper in appendix

Normalized Statement of Cash Flow Sheet

12/31/2013 12/31/2014 12/31/2015 12/31/2016

Cash Flow from Operations

Sales (Income) $698,555 $644,285 $584,974 $1,116,127 Cost of Sales (COGS) $601,700 $554,128 $473,358 $897,681 Gross Profit $96,855 $90,157 $111,616 $218,446 Overhead or S,G,&A Expenses $140,914 $107,944 $129,292 $139,967 Other Operating Income ------Other Operating Expenses ------Operating Profit ($44,059) ($17,787) ($17,676) $78,479 Other Expenses ------Net Profit Before Taxes ($44,059) ($17,787) ($17,676) $78,479 Taxes Paid ------Net Income ($44,059) ($17,787) ($17,676) $78,479 Add Back Depreciation ------

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Add Back Amortization ------Decrease (Increase) in Accounts Receivable ------($74,000) Increase (Decrease) in Accounts Payable ------Increase (Decrease) in Other Current Liabilities ------Cash Flow from Operations ($44,059) ($17,787) ($17,676) $4,479

Cash Flow from Investments

Capital Expenditures $1,775 $1,775 $1,775 ($30,499) Decrease (Increase) in Intangible Assets ------Decrease (Increase) in Other Assets ------Cash Flow from Investments $1,775 $1,775 $1,775 ($30,499)

Cash Flow from Financing Activities

Increase (Decrease) in Short Term Debt ($44,791) ($6,761) ($1,000) $1,500 Increase (Decrease) in Current Long Term Debt ------$24,000 Increase (Decrease) in Additional Paid-in Capital ------Increase (Decrease) in Other Stock ------Dividends Paid / Withdrawals $1,150 $55,400 $49,275 -- Other Changes to Retained Earnings ------Changes to Retained Earnings Due to Normalizing Adjustments $88,225 $88,225 $57,075 ($80) Cash Flow from Financing Activities $42,284 $26,064 $6,800 $25,420 Net Free Cash Flow -- $10,052 ($9,101) ($600) Beginning Total Cash -- -- $10,052 $951 Ending Total Cash -- $10,052 $951 $351 Unexplained Change in Cash on Balance Sheet ------

Sales Analysis

Sales for 2016 increased substantially over prior years. It is the opinion of management that this was a one year occurrence and will not be a trend in the future. Years prior to 2016 averaged $642,000. It is felt that these years are more representative anticipated future sales.

Industry Comparison Analysis

Income Statement Analysis

The following common size income statement reflects the Company's historical and current performance with each account expressed as a percentage of sales. The percentages shown are calculated after any normalizing adjustments, if applicable.

12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 Sageworks Data

Sales (Income) 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Cost of Sales (COGS) 96.14 % 86.13 % 86.01 % 80.92 % 80.43 % 60.81 % Gross Profit 3.86 % 13.87 % 13.99 % 19.08 % 19.57 % 39.19 % Depreciation 0.52 % 0.25 % 0.28 % 0.30 % 14.21 % 0.84 % Overhead or S,G,& A Expenses 5.68 % 7.29 % 2.79 % 12.04 % 7.16 % 28.57 % Other Operating Income 0.00 % 0.00 % 0.00 % 0.00 % 4.34 % 0.00 % Other Operating Expenses 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 4.19 % Operating Profit -2.33 % 6.32 % 10.93 % 6.74 % 2.54 % 5.59 % Interest Expense 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.43 %

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Other Income 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.08 % Other Expenses 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.08 % Net Profit Before Taxes -2.33 % 6.32 % 10.93 % 6.74 % 2.54 % 5.16 % Taxes Paid 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 1.26 % Net Income -2.33 % 6.32 % 10.93 % 6.74 % 2.54 % 3.90 %

Industry data for the income statement analysis was derived for Sageworks Industry Data for the year 2016. As seen in the common size statement, the Company's gross profit percentage has increased from 3.86% to 19.57% over the period being analyzed. The Company's operating profit percentage has gone from -2.33% to 2.54% over the same period. Revenue has remained steady until the 2016 year when a spike up was recorded. This was due to a few larger jobs taken on and is considered an anomaly by management. Industry operating profit and net profit run 5.59% and 3.90% respectively. Coastal operating profit and net at year end 2016 were 2.54 and 2.54 due to the lack of interest expense. Standard deviation of Coastal Construction’s net earnings over five years was calculated at 4.98. Using the mean of the same five years of net profit, an industry average of 3.90% and a standard deviation of 4.98 I was able to calculate a Z score of .18876.

The Company's gross margin in 2016 is 1,962 basis points below the industry average. The Company generated an operating profit margin that is 305 basis points below the industry average. See the following chart for additional information related to trends in the Company's margins.

Summary of Ratios Coastal Construction’s financial ratios indicate lower than average industry ratios in almost all key ratio areas except average net profit. This is primarily due to the relatively small size of the business, the nature of government bidding and its effects on margins. Coastal has mitigated this by effectively managing overhead at very low levels. The overhead management has mitigated the lower than average margins. Other than factoring in a component in the Discount for Marketability due to the small size of the company I do not believe that the ratio analysis negatively impacts the value of the company.

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Balance Sheet Analysis

The following common size balance sheet reflects the Company's historical and current performance as shown as a percentage of total assets. The percentages shown are calculated after any normalizing adjustments, if applicable.

12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 Sageworks Data

Cash (Bank Funds) 0.00 % 0.00 % 15.61 % 1.78 % 0.42 % 14.38 % Accounts Receivable 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 19.88 % Total Current Assets 0.00 % 0.00 % 15.61 % 1.78 % 0.42 % 61.85 % Gross Fixed Assets 220.59 % 227.57 % 198.32 % 238.62 % 379.74 % 65.33 % Accumulated Depreciation 120.59 % 127.57 % 113.93 % 140.40 % 280.16 % 36.15 % Net Fixed Assets 100.00 % 100.00 % 84.39 % 98.22 % 99.58 % 29.18 % Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Accounts Payable 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 15.49 % Short Term Debt 95.17 % 18.36 % 5.50 % 4.75 % 4.84 % 0.33 % Notes Payable / Current Portion of Long Term Debt 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.91 % Other Current Liabilities 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 21.10 % Total Current Liabilities 95.17 % 18.36 % 5.50 % 4.75 % 4.84 % 54.51 % Notes Payable / Senior Debt 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 7.57 % Notes Payable / Subordinated Debt 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.04 % Other Long Term Liabilities 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.59 % Total Long Term Liabilities 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 32.82 % Total Liabilities 95.17 % 18.36 % 5.50 % 4.75 % 4.84 % 87.33 % Preferred Stock 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % Common Stock 1.73 % 1.78 % 1.55 % 1.87 % 1.20 % 0.84 % Additional Paid-in Capital 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 1.36 % Other Stock / Equity 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % -0.73 % Ending Retained Earnings 3.10 % 79.86 % 92.95 % 93.38 % 93.96 % 12.57 % Total Equity 4.83 % 81.64 % 94.50 % 95.25 % 95.16 % 12.67 % Total Liabilities + Equity 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 %

The Company has experienced an increase in current assets, as a percentage of total assets, over the prior 5 periods. The Company's current assets, as a percentage of total assets, are below the industry average. Increase in current assets occurred due to the inclusion of receivables at year end as part of the normalizing adjustments.

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Retained earnings, as a percentage of total assets, have seen an increase from 2012 to 2016. Over the same period, there also has been an increase in total equity, as a percentage of total assets.

Ratio Analysis

The following table contains various ratios that can be valuable in the analysis of the subject company. Coastal Construction has ratios which fall below industry averages in almost every area. I attribute this to the low margins and the overall small size of the business as compared to peers. Current Ratio, Quick ratio and Working Capital turnover are all below industry comparisons. Turnover ratios are largely not applicable as the company carries no inventory and keeps their books on cash basis and as such does not have year over year receivables or payables. Interest coverage ratios are also not applicable because the company has no interest expense and insignificant debt. Net fixed assets to tangible net worth is running at 52%. This is due to the fact that significant purchases of new vehicles occurred in 2016 and as such makes up a large portion of the fixed asset base. Liabilities to net worth are 15%. Current liabilities to tangible net worth is not applicable because there are no significant current liabilities. Total assets to equity is 1.2, again, this is due to the fact that the company carries very limited liabilities. The company has one vehicle note at $24,000. Trade payables are paid when received and as such not significant payables are accrued. As there is a limited amount of debt as discussed above

Period 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 Sage works Data

Liquidity Ratios

Current Ratio 0.00 0.00 2.84 0.37 0.09 2.57

Quick Ratio 0.00 0.00 2.84 0.37 0.09 2.00

WC to Total Assets -0.95 -0.18 0.10 -0.03 -0.04 0.13

Activity Ratios

AR Days ------27.09

AP Days ------24.98

Inventory Days ------5.99

Asset Turnover 10.18 12.45 10.01 10.93 13.38 --

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Profitability Ratios

Return on Assets -0.24 0.79 1.09 0.74 0.34 0.22

Return on Equity -4.91 0.96 1.16 0.77 0.36 0.54

Gross Profit Margin 0.04 0.14 0.14 0.19 0.20 0.39

EBITDA Margin -0.02 0.07 0.11 0.07 0.17 0.08

Net Profit Margin -0.02 0.06 0.11 0.07 0.03 0.05

Leverage Ratios

Debt to EBITDA -- 0.22 0.05 0.06 0.02 4.85

Coverage Ratios

Interest Coverage Ratio ------10.83

Debt Service Coverage Ratio ------5.59

Risk Ratios

Operating Leverage -0.02 22.72 -7.66 4.79 -0.31 --

Financial Leverage 1.00 1.00 1.00 1.00 1.00 --

Utilization Ratios

Sales to Working Capital 10.69 67.81 98.94 368.14 302.56 24.04

Sales to Fixed Assets 10.18 12.45 11.86 11.13 13.44 --

Sales to Equity 210.88 15.25 10.59 11.48 14.06 --

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Company Profitability

Between 2012 and 2016 the Company has experienced an increase in the return on its assets and an increase on the return on its equity.

Valuation Methods and Conclusion

As discussed in the introduction section of this report, the three approaches for valuing a company include the Income Approach, Market Approach, and Asset Approach.

The final valuation approach, (Asset Approach) was decided on because after normalizing the income statement for a comparable salary for a person with the responsibility that the owner has and then calculating using the most appropriate method under the income approach, it yielded a negative value. As such, the (Income Approach) was eliminated. By researching the market for similar companies, it was concluded that the value of the business using the market approach and a reasonable discount rate that the company was worth less than the value of the hard assets. As a result, the (Market Approach) was eliminated. After eliminating these approaches the remaining valuation approach was concluded to be the fairest method.

The Income Approach

The primary methods for determining the value under the Income Approach are the Capitalization of Benefits, Discounted Future Benefits, and Capitalization of Excess Earnings methods. Due to the unpredictability of future cash flows for this business I chose the Capitalization of Benefits method.

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Capitalization of Benefits Method

The Capitalization of Benefits Method is based on the assumption that the historical performance of a company is a strong indicator of future performance. Therefore, the company's historical weighted average cash flow (see chart below) can be capitalized at the appropriate rate to determine the value of the company. The capitalization rate used will be discussed in more detail in a later section of this report.

Reconciliation of Value:

Normalizing adjustments for the income statement of Coastal Construction, Inc. included adding the salary expense for managers of similar responsibility as Mr. Jones and Mr. Smith. Salary comparisons were obtained from www.salary.com. In addition, the elimination of depreciation expense to adjust to actual cash flow and the elimination of improperly recorded insurance proceeds as other income.

Balance sheet adjustments included the addition of accounts receivable and the addition of a note payable on a vehicle. Due to the fact that accelerated depreciation was applied to the book assets as well as the fact that bookkeeping errors were recorded on the balance sheet with respect to the net book value of the assets, I valued the assets from other sources (www.edmunds.com) and adjusted the balance sheet to reflect the accurate values on these assets. The discount rate or weighted average cost of capital calculation using the build-up method can be found on page 23. A capitalization rate was not used due to the fact that this valuation is related to a marital dissolution. The departing spouse would not participate in the capital contributions required to finance growth of the business. The difference between a discount rate and a capitalization rate is the projected growth rate. Therefore, no growth rate was included in the calculation.

The capitalization rate calculation included an allowance for industry risk as well as overall company risk. Company risk was rated at 10% (high) due to customer concentration, reliance on only two individual employees and unpredictability of government funding. Given the negative value using this approach, there was no reason to apply a discount for marketability or discount for lack of control.

Income Based Valuation Weighted Average Cash Flow ($32,451) Growth Rate 0% Future Cash Flow ($32,451) Discount Rate 29.16% Capitalization Rate 29.16% Market Value of Invested Capital ($111,286) Less Debt ($28,040) Plus: Non-Operating Assets -- Pre-Adjusted Capitalization of Benefits Valuation ($139,326) Capitalization of Benefits Valuation ($139,326)

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Weighted Average Cash Flow Calculation

12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 EBIT ($100,678) ($44,059) ($17,787) ($17,676) $78,479 Less Taxes $0 $0 $0 $0 $0 Plus: Depreciation and Amortization $0 $0 $0 $0 $0 Less: Change in Working Capital $0 $0 $0 $0 $74,000 Less: Capital Expenditures $0 ($1,775) ($1,775) ($1,775) $30,499 Unlevered Cash Flow ($100,678) ($42,284) ($16,012) ($15,901) ($26,020) Weight 10.00% 26.66% 26.66% 26.66% 10.00%

Weighted Average Free Cash Flow ($32,451)

General Comments for Capitalization of Benefits method The 2012 and 2016 and weight was lowered to 10% due to the outlier nature of the 2012 net profit and 2016 revenue and net profit for that year. The remaining years were equalized at 26.66%

Because this is a marital dissolution valuation and the departing spouse would not participate in the growth and or capital required to finance growth there was no growth rate used in the calculation.

As seen in the previous table, the pre-adjustment equity value conclusion using the Capitalization of Benefits method is ($139,326).

The Market Approach The three most common methods for valuing a company under the Market Approach are the Guideline Public Company Method, the Guideline Company Transactions Method (also referred to as the Merged and Acquired Method), and the Prior Transaction in Subject Company Method. The total population of companies from the completed transactions Bizcomps database was seventeen. Four transactions were eliminated because they were over seven years old or much larger than the subject company. For this valuation, I used the Guideline Company Transactions Method. The following tables reflect the multiples chosen from the BizComps database for company transactions similar to the subject company. I used 13 different transactions of the same SIC code and reasonably similar size to the subject company. Average age of the transactions was seven years from the transaction date. Although we acknowledge that the age of the transactions was not ideal I felt that they remained relevant to the valuation. The transactions used were similar in terms of transaction size, company size, and other operating ratios. The price/revenue calculation was given a 20% weight due to the significant variation in the revenue during the five-year period preceding the valuation date. The price/sellers discretionary earnings multiple was given an 80% weight because of the emphasis on earnings generally given by a potential investors for this type of company. Assets usually included in a market based valuation and or sale typically include all fixed assets required to operate the business as well as intangibles. Accounts receivable, Cash and debt are typically not included in

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a market based sale or valuation. As a reasonableness check, I reviewed the First Research Industry Data database.

Transactions Selected Price / Price / ID SIC NAICS Business Description Revenue SDE Price State Sale Date Revenue SDE 00460 1521 236115 Contr-Building 1,927 128 190 0.10 1.48 FL 8/13/2015 00472 1521 236115 Contr-Building 538 50 89 0.17 1.78 CA 4/30/2013 00484 1521 236115 Contr-General 8,401 2,173 2,068 0.25 0.95 FL 2/26/2010 00487 1521 236115 Contr-General 1,583 271 95 0.06 0.35 FL 12/29/2008 00492 1521 236115 Contr-General 2,924 222 700 0.24 3.15 UT 12/13/2007 00495 1521 236115 Contr-General 780 166 247 0.32 1.49 FL 2/23/2007 00470 1521 236115 Contr-General 351 76 87 0.25 1.14 CO 12/12/2013 00507 1521 236115 Contr-General Building 3,370 410 498 0.15 1.21 FL 8/1/2004 00508 1521 236115 Contr-General Building 995 132 245 0.25 1.86 GA 5/18/2004 00473 1521 236115 Contr-General Building 1,250 200 600 0.48 3.00 CA 1/24/2013 00501 1521 236115 Contr-General Constr 4,406 1,807 1,500 0.34 0.83 FL 2/22/2006 00463 1521 236115 Contr-Home Building 682 120 190 0.28 1.58 IA 8/29/2014 00503 1521 236115 General Contractor 955 101 687 0.72 6.80 FL 6/29/2005

Transactions Selected

Revenue SDE Price Price / Revenue Price / SDE

Low $351 $50 $87 0.06 0.35 High $8,401 $2,173 $2,068 0.72 6.80 Mean $2,166 $450 $554 0.28 1.97 Median $1,250 $166 $247 0.25 1.49 Harmonic Mean $1,045 $145 $218 0.19 1.22 Standard Deviation $2,237 $694 $601 0.17 1.65 Coefficient of Variation 1.03 1.54 1.09 0.62 0.84

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Calculate Equity Value

Select and Weight Ratios Value Calculation

Price / Revenue Price / SDE Total Weighted Asset Value 121,392 Total Long-Term Debt 28,040 Mean 0.28 1.97 Asset Value Without Long Term Debt 93,352 Median 0.25 1.49 Harmonic Mean 0.19 1.22 Total Current Assets 74,351 Coefficient of Variation 0.62 0.84 Real Estate 0 Select Multiple Harmonic Mean Harmonic Mean Net Intangible Assets 0 Other Non-Current Assets 0 Base (Revenue or SDE) 677,938 98,472 Total Additions 74,351 Selected Multiple 0.19 1.22 Asset Value 127,523 119,859 Accounts Payable 0 Short Term Notes Payable 0 Assign Weight 20% 80% Other Current Liabilities 0 Other Non-Current Liabilities 0 Weighted Asset Value 25,505 95,887 Total Subtractions 0

Equity Value 167,703

Valuation Value Minority Discount Marketability Discount Adjusted Market Value Market Approach $167,703 28% 23% $92,975

The Asset Approach

The asset based approach determines the net asset value of the Company as of the date of the valuation. The following is a table showing the company's net asset value.

Current Book Value Adjustments Adjusted Value

Cash $351 -- $351 Accounts Receivable -- $74,000 $74,000 Total Current Assets $351 $74,000 $74,351 Gross Fixed Assets $316,742 ($159,729) $157,013 Accumulated Depreciation $233,682 ($233,682) -- Net Fixed Assets $83,060 $73,953 $157,013 Total Assets $83,411 $147,953 $231,364 Accounts Payable ------Short Term Debt $4,040 -- $4,040 Notes Payable / Current Portion of Long Term Debt -- $24,000 $24,000 Other Current Liabilities ------Total Current Liabilities $4,040 $24,000 $28,040 Total Liabilities $4,040 $24,000 $28,040 Preferred Stock ------Common Stock $1,000 -- $1,000 Ending Retained Earnings $78,371 $123,953 $202,324 Total Equity $79,371 $123,953 $203,324 Total Liabilities + Equity $83,411 $147,953 $231,364 Net Asset Value Valuation $203,324

Other Adjustments --

Adjusted Net Asset Value Valuation $203,324

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Specific Comments for the Asset Approach

• Accounts Receivable: Add receivables net of bad debt at 12/31/2016.

• Gross Fixed Assets: Adjust fixed assets to actual value. A review of the balance sheet and consultation with management would indicate that assets have been sold or retired without being removed from the balance sheet. This adjustment is to remove non- existent assets and record the actual current net value at 12/31/2016

• Accumulated Depreciation: Adjust depreciation to 0 to due to gross fixed assets being adjusted to current market value.

• Notes Payable / Current Portion of Long Term Debt: Add note payable on 2016 Isuzu.

• Ending Retained Earnings: Adjust retained earnings to reflect balance sheet adjustments.

The valuation conclusion using the adjusted net asset value method is $203,324.

Valuation Adjustments

The value of a closely-held business may be higher or lower than the value calculated by the valuation analyst using the methods discussed in this report. The primary adjustments to value include discounts for lack of marketability and lack of control (minority). There are also times when a control premium is needed. These adjustments are typically used when valuing a minority interest in a company, as is the case in this valuation. These discounts have been added to the Valuation Conclusion section below.

Discount for Lack of Marketability: The discount for lack of marketability (DLOM) reflects the fact that, unlike publicly traded companies, there is not a quick source of liquidity for owners of a closely-held business. This applies to both controlling and minority interests. There have been many studies undertaken over the years in an attempt to understand the impact of marketability as a characteristic of equity ownership. The studies themselves are varied and complex. However, they can be generally classified into four general categories.

1. Restricted Stock Studies 2. Pre-IPO Studies 3. Price/Earnings Comparisons 4. Measurement of flotation costs

1. Comparison of private placements of restricted shares of public company stocks with publicly traded unrestricted shares of the same company. The restrictions imposed on the private placement shares are generally imposed by Securities and Exchange Commission rules. These are commonly referred to as Restricted Stock Studies.

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2. Comparisons of pre-initial public offering stock transaction values with post-initial public offering transactions and stock value of the same company. These are commonly referred to as pre-IPO Studies. 3. Comparisons of public companies price/earnings ratios with price earnings multiples on acquisitions of privately held companies. 4. Measurement of flotation costs as a means of measuring the effects of marketability on control interest value. This method is not commonly used due to numerous practical

Some of the studies mentioned above are Institutional investors study, Public Offering Studies, Security and Exchange Commission Study, The Gelman Study, Trout Study, The Moroney Study, The Maher Study, Standard Research Consultants, Pitlock Stryker Study, Silber Study, FMV Opinions, Hall Polleck Study, IPO Studies and the Emory Study.

Some of the factors affecting the discount for lack of marketability for Coastal Construction include the relative small size of the company, the geographic location and the lack of profitability.

The calculation of the DLOM was accomplished by collecting 29 comparable public companies from the Pluris DLOM database. We then compared the financial information from Coastal Construction to the population and chose the data quartile grouping of the comparable public companies. This yielded the discounts for marketability for the comparable companies. We then performed the same analysis on the entire database of comparable companies and averaged the two results. This yielded a Restricted Stock Equivalent (RSED) of 15.5%. The second step in calculating the discount is establishing the Private Equity Discount Increment (PEDI). By taking both small block and large block data of the comparable companies and subtracting the data one from the other we are able to establish the incremental discount for a small private company such as Coastal. This number is then added to the RSED to arrive at the final DLOM. In this case the PEDI was 7.1%. By adding the RSED and the PEDI and rounding up we reach a 23% DLOM.

Lack of Marketability Analysis: Discount Conclusion

Concluded Restricted Stock Equivalent Discount (RSED) 15.5%

Concluded Private Equity Discount Increment (PEDI) 7.1%

Indicated Discount for Lack of Marketability (Rounded) 23.0%

Concluded Discount for Lack of Marketability (Rounded) 23.0%

Discount for Lack of Control: The discount for lack of control (DLOC) may be applied to the value of a non-controlling (minority) interest in a company. Conversely, a premium may be added to the valuation of a company in which the ownership interest is a controlling position. if the equity holder has a control position, he or she can accelerate the receipt of those future benefits and via management and operational initiatives, take direct steps to enhance the future benefits, or at least the probability that they will be generated. On the other hand, a minority or

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non-controlling position in a privately held company is generally held at the great risk of being subject to the judgment, ethics and management skills of the controlling shareholder(s). Depending on a number of items, the impairment of value can be significant.

For this valuation, we are valuing a non-controlling 49% interest. I used the Mergerstat Control Premium Guide to calculate the DLOC. Mergerstat uses actual transactions where at least 50.1% of the company was acquired and calculates the premiums paid for companies where the buyer purchased that controlling interest. By referring to the Mergerstat data for the SIC code associated with construction companies and using the average of the last four years we arrived at an average control premium of 39.2%. We then apply a formula to invert the reported premium into an implied discount. 1-(1 / (1+39.2%))=28% rounded.

Other Discounts: There are numerous other discounts and or premiums that can be applied to the value of a company. Some examples of these are Key Man, Lack of Diversification, One Time Loss, Built In Gains. At this time it was felt that none of these additional discounts applied.

Court Decisions: There are numerous cases supporting the use of discounts for marketability as well as control. Too many to list. Below are a few well known decisions that discuss the applicability of control and marketability discounts.

Central Trust Co. v. United States, 305 F 2d 292 (Ct. Cl., 1962) the Court of Claims stated: “It seems clear, however, that an unlisted closely held stock of a corporation, in which trading is infrequent and which therefore lacks marketability, is less attractive than a similar stock which is listed on an exchange and has ready access to the investing public.”

Mandelbaum v. Commissioner, T.C. Memo 1995-255, aff’d. 91F3d 124 (3rd Cir. 1996) is an important case in business valuation in that it isolates size of a discount for lack of marketability as its only substantial issue. Rarely have the courts been so specific in their analysis of an issue nor has a court’s decision been open to so much commentary and review by practitioners

Estate of Joseph Cidulka, T.C. Memo 1996-149 The valuation of a minority stock interest with respect to gift tax implications.

Estate of Elizabeth B. Murphy v. Commissioner, T.C. Memo 1990-472 Asset gifting to create a minority interest and lower estate tax.

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Discount and Capitalization Rates

Shannon Pratt and Roger Grabowski define the cost of capital as the expected rate of return that the market participants require in order to attract funds to a particular investment. The market, which is assumed to be a universe of rational investors, sets the cost of capital for a particular company. The company must go to the market to discover the return it must promise, to obtain capital (debt or equity). The cost of capital should capture the risk inherent in the investment, relative to the risk inherent in alternative investments.

Cost of Equity Method Cost of Equity Build-up: 29.16%

Cost of Debt Interest Rate: 6% Tax Rate: 15% After-tax Cost of Debt: 5.1%

Capital Structure Debt: 0% Equity: 100%

Build-Up Method Risk-Free Rate-30 year Treasury 2.88% Equity Risk Premium-Duff and Phelps 6.28% Size Premium-Duff and Phelps 5% Industry Specific Risk Premium: 5% Company Specific Risk Premium: 10% Required Return on Security: 29.16%

The final discount rate, or weighted average cost of capital (WACC), was determined to be 29.16%. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm’s cost of capital. Importantly, it is dictated by the external market and not by management. The WACC represents the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere. Schilt’s risk premium for discounting income streams was relied upon to determine the final discount rate. Coastal is a small business relying on the special skill of two people and as such rates a higher company specific risk. The Risk Free Rate as well as the Equity Risk Premium were the rates as of 12/31/2016 as reported by The Wall Street Journal and Duff and Phelps. Because the valuation was for the purpose of marital dissolution, there was no growth rate considered due to the fact that the departing spouse would not participate in the financing associated with company growth.

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Valuation Conclusion Valuation Value Minority Discount Marketability Discount Adjusted Equity Value

Adjusted Net Asset Value $203,324 28% 23% $112,723

Equity Value: $112,723 Value Per Share: $112.72 Interest Being Valued: 49% Conclusion of Value: $55,234 for 490 shares. As clarification, I used the www.edmunds.com website to research the value of the vehicles on the balance sheet. As I was unable to inspect the actual vehicles during my site visit, I relied upon management representations of the vehicle conditions when assessing the values. In addition, there were no third-party appraisals performed on the vehicles and I am not a vehicle appraisal expert. A 10% discount was applied to the receivables prior to making the normalizing entry on the balance sheet. This discount could be high or low and no analysis was performed to assess true collectability. The 10% discount was an estimate of management. Reconciliation of Approach and Values: Coastal Construction is a very small construction company that provides jobs primarily for its two owners. After adjusting the financials to normalize the earnings of the business it does not provide enough post adjustment income to qualify as an investable business. In fact, it produces a loss. The average of this year over year loss produces a negative value on an income based approach. For this reason, we eliminated the approach from consideration. For the market approach, I found relevant data to establish a market based multiple but the value of the entity using the market approach still fell below the floor valuation using the asset based approach. There were also no significant intangibles which would have been could not have been valued using the asset approach. For this reason, the asset approach was used. I would also note that the bulk of the assets are vehicles and small tools that depreciate rapidly and cannot be liquidated without the consent of the majority shareholder. This adds weight and justification for the use of a DLOC and DLOM in the valuation. We have performed a valuation engagement, as that term is defined in the National Association of Certified Valuators and Analysts of Coastal Construction, Inc. as of 12/31/2016. This valuation was performed solely to assist in the matter of assess the value for a marital dissolution. The resulting estimate of value should not be used for any other purpose or by any other party for any purpose.

Based on our analysis, as described in this valuation report, the estimate of value of Coastal Construction, Inc. as of 12/31/2016 was $112,723. This conclusion is subject to the Statement of Assumptions and Limiting Conditions found in Appendix A and to the valuation analyst's representation found in the next paragraph. We have no obligation to update this report or conclusion of value for information that comes to our attention after the date of this report.

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Representation/Certification/Impartiality of the Valuation Analyst a. The analyses, opinions, and conclusion of value included in the valuation report are subject to the specified assumptions and limiting conditions and they are the personal analyses, opinions, and conclusion of value of the valuation analyst. b. The economic and industry data included in the valuation report have been obtained from various printed or electronic reference sources that the valuation analyst believes to be reliable. The valuation analyst has not performed any corroborating procedures to substantiate that data. c. The valuation engagement was performed in accordance with the National Association of Certified Valuators and Analysts Professional Standards. d. The parties for which the information and use of the valuation report is restricted are identified; the valuation report is not intended to be and should not be used by anyone other than such parties. e. The analyst's compensation is fee-based and was not based on the outcome of the valuation. f. The statements of fact contained in this report are true and correct. g. The valuation analyst has no obligation to update the report or the opinion of value for information that comes to his or her attention after the date of the report. h. I have no present or prospective/contemplated financial or other interest in the business or property that is the subject of this report, and I have no personal financial or other interest or bias with respect to the property or the parties involved. i. My engagement in this assignment was not contingent upon developing or reporting predetermined results.

______Signature David Sheives, CVA, CFE

January, 10, 2017 Date

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Appendix A: Statement of Assumptions and Limiting Conditions

1. The conclusion of value arrived at herein is valid only for the stated purpose as of the date of the valuation. 2. Financial statements and other related information provided by Coastal Construction, Inc. or its representatives, in the course of this engagement, have been accepted without any verification as fully and correctly reflecting the enterprise's business conditions and operating results for the respective periods, except as specifically noted herein. Summit Valuation Advisors, LLC has not audited, reviewed, or compiled the financial information provided to us and, accordingly, we express no audit opinion or any other form of assurance on this information. 3. Public information and industry and statistical information have been obtained from sources we believe to be reliable. However, we make no representation as to the accuracy or completeness of such information and have performed no procedures to corroborate the information. 4. We do not provide assurance on the achievability of the results forecasted by Coastal Construction, Inc. because events and circumstances frequently do not occur as expected; differences between actual and expected results may be material; and achievement of the forecasted results is dependent on actions, plans, and assumptions of management. 5. The conclusion of value arrived at herein is based on the assumption that the current level of management expertise and effectiveness would continue to be maintained, and that the character and integrity of the enterprise through any sale, reorganization, exchange, or diminution of the owners' participation would not be materially or significantly changed. 6. This report and the conclusion of value arrived at herein are for the exclusive use of our client for the sole and specific purposes as noted herein. They may not be used for any other purpose or by any other party for any purpose. Furthermore the report and conclusion of value are not intended by the author and should not be construed by the reader to be investment advice in any manner whatsoever. The conclusion of value represents the considered opinion of Summit Valuation Advisors, LLC, based on information furnished to them by Coastal Construction, Inc. and other sources. 7. Neither all nor any part of the contents of this report (especially the conclusion of value, the identity of any valuation specialist(s), or the firm with which such valuation specialists are connected or any reference to any of their professional designations) should be disseminated to the public through advertising media, public relations, news media, sales media, mail, direct transmittal, or any other means of communication without the prior written consent and approval of Summit Valuation Advisors, LLC.

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8. Future services regarding the subject matter of this report, including, but not limited to testimony or attendance in court, shall not be required of Summit Valuation Advisors, LLC unless previous arrangements have been made in writing. 9. Summit Valuation Advisors, LLC is not an environmental consultant or auditor, and it takes no responsibility for any actual or potential environmental liabilities. Any person entitled to rely on this report, wishing to know whether such liabilities exist, or the scope and their effect on the value of the property, is encouraged to obtain a professional environmental assessment. Summit Valuation Advisors, LLC does not conduct or provide environmental assessments and has not performed one for the subject property. 10. Summit Valuation Advisors, LLC has not determined independently whether Coastal Construction, Inc. is subject to any present or future liability relating to environmental matters (including, but not limited to CERCLA/Superfund liability) nor the scope of any such liabilities. Summit Valuation Advisors, LLC's valuation takes no such liabilities into account, except as they have been reported to Summit Valuation Advisors, LLC by Coastal Construction, Inc. or by an environmental consultant working for Coastal Construction, Inc., and then only to the extent that the liability was reported to us in an actual or estimated dollar amount. Such matters, if any, are noted in the report. To the extent such information has been reported to us, Summit Valuation Advisors, LLC has relied Statement on Standards for Valuation Services No. 1 on it without verification and offers no warranty or representation as to its accuracy or completeness. 11. Summit Valuation Advisors, LLC has not made a specific compliance survey or analysis of the subject property to determine whether it is subject to, or in compliance with, the American Disabilities Act of 1990, and this valuation does not consider the effect, if any, of noncompliance. 12. No change of any item in this appraisal report shall be made by anyone other than Summit Valuation Advisors, LLC, and we shall have no responsibility for any such unauthorized change. 13. Unless otherwise stated, no effort has been made to determine the possible effect, if any, on the subject business due to future Federal, state, or local legislation, including any environmental or ecological matters or interpretations thereof. 14. If prospective financial information approved by management has been used in our work, we have not examined or compiled the prospective financial information and therefore, do not express an audit opinion or any other form of assurance on the prospective financial information or the related assumptions. Events and circumstances frequently do not occur as expected and there will usually be differences between prospective financial information and actual results, and those differences may be material. 15. We have conducted interviews with the current management of Coastal Construction, Inc. concerning the past, present, and prospective operating results of the company. 16. Except as noted, we have relied on the representations of the owners, management, and other third parties concerning the value and useful condition of all equipment, real estate, investments used in the business, and any other assets or liabilities, except as

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specifically stated to the contrary in this report. We have not attempted to confirm whether or not all assets of the business are free and clear of liens and encumbrances or that the entity has good title to all assets.

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Appendix B: Glossary of Terms

Adjusted Book Value Method - a method within the asset approach whereby all assets and liabilities (including off-balance sheet, intangible, and contingent) are adjusted to their fair market values. {NOTE: In Canada on a going concern basis}

Adjusted Net Asset Method-see Adjusted Book Value Method.

Appraisal-see Valuation.

Appraisal Approach-see Valuation Approach.

Appraisal Date-see Valuation Date.

Appraisal Method-see Valuation Method.

Appraisal Procedure-see Valuation Procedure.

Arbitrage Pricing Theory-a multivariate model for estimating the cost of equity capital, which incorporates several systematic risk factors.

Asset (Asset-Based) Approach-a general way of determining a value indication of a business, business ownership interest, or security using one or more methods based on the value of the assets net of liabilities.

Beta-a measure of systematic risk of a stock; the tendency of a stock's price to correlate with changes in a specific index.

Blockage Discount-an amount or percentage deducted from the current market price of a publicly traded stock to reflect the decrease in the per share value of a block of stock that is of a size that could not be sold in a reasonable period of time given normal trading volume.

Book Value-see Net Book Value.

Business-see Business Enterprise.

Business Enterprise-a commercial, industrial, service, or investment entity (or a combination thereof) pursuing an economic activity.

Business Risk-the degree of uncertainty of realizing expected future returns of the business resulting from factors other than financial leverage. See Financial Risk. Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset 41 Business Valuation-the act or process of determining the value of a business enterprise or ownership interest therein.

Capital Asset Pricing Model (CAPM)-a model in which the cost of capital for any stock or

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portfolio of stocks equals a risk-free rate plus a risk premium that is proportionate to the systematic risk of the stock or portfolio.

Capitalization-a conversion of a single period of economic benefits into value.

Capitalization Factor-any multiple or divisor used to convert anticipated economic benefits of a single period into value.

Capitalization of Earnings Method-a method within the income approach whereby economic benefits for a representative single period are converted to value through division by a capitalization rate.

Capitalization Rate-any divisor (usually expressed as a percentage) used to convert anticipated economic benefits of a single period into value.

Capital Structure-the composition of the invested capital of a business enterprise; the mix of debt and equity financing.

Cash Flow-cash that is generated over a period of time by an asset, group of assets, or business enterprise. It may be used in a general sense to encompass various levels of specifically defined cash flows. When the term is used, it should be supplemented by a qualifier (for example, "discretionary" or "operating") and a specific definition in the given valuation context.

Common Size Statements-financial statements in which each line is expressed as a percentage of the total. On the balance sheet, each line item is shown as a percentage of total assets, and on the income statement, each item is expressed as a percentage of sales.

Control-the power to direct the management and policies of a business enterprise.

Control Premium-an amount or a percentage by which the pro rata value of a controlling interest exceeds the pro rata value of a non-controlling interest in a business enterprise to reflect the power of control.

Cost Approach-a general way of determining a value indication of an individual asset by quantifying the amount of money required to replace the future service capability of that asset.

Cost of Capital-the expected rate of return that the market requires in order to attract funds to a particular investment.

Debt-Free-we discourage the use of this term. See Invested Capital.

Discount for Lack of Control-an amount or percentage deducted from the pro rata share of value of 100% of an equity interest in a business to reflect the absence of some or all of the powers of control.

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Discount for Lack of Marketability-an amount or percentage deducted from the value of an ownership interest to reflect the relative absence of marketability.

Discount for Lack of Voting Rights-an amount or percentage deducted from the per share value of a minority interest voting share to reflect the absence of voting rights.

Discount Rate-a rate of return used to convert a future monetary sum into present value.

Discounted Future Benefits Method-a method within the income approach whereby the present value of future expected net cash flows is calculated using a discount rate.

Discounted Future Earnings Method-a method within the income approach whereby the present value of future expected economic benefits is calculated using a discount rate.

Economic Benefits-inflows such as revenues, net income, net cash flows, etc.

Economic Life-the period of time over which property may generate economic benefits.

Effective Date-see Valuation Date.

Enterprise-see Business Enterprise.

Equity-the owner's interest in property after deduction of all liabilities. Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset 43

Equity Net Cash Flows-those cash flows available to pay out to equity holders (in the form of dividends) after funding operations of the business enterprise, making necessary capital investments, and increasing or decreasing debt financing.

Equity Risk Premium-a rate of return added to a risk-free rate to reflect the additional risk of equity instruments over risk free instruments (a component of the cost of equity capital or equity discount rate).

Excess Earnings-that amount of anticipated economic benefits that exceeds an appropriate rate of return on the value of a selected asset base (often net tangible assets) used to generate those anticipated economic benefits.

Excess Earnings Method-a specific way of determining a value indication of a business, business ownership interest, or security determined as the sum of a) the value of the assets derived by capitalizing excess earnings and b) the value of the selected asset base. Also frequently used to value intangible assets. See Excess Earnings.

Fair Market Value-the price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm's length in an open and unrestricted market, when neither is under

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compulsion to buy or sell and when both have reasonable knowledge of the relevant facts. {NOTE: In Canada, the term "price" should be replaced with the term "highest price".}

Fairness Opinion-an opinion as to whether or not the consideration in a transaction is fair from a financial point of view.

Financial Risk-the degree of uncertainty of realizing expected future returns of the business resulting from financial leverage. See Business Risk.

Forced Liquidation Value-liquidation value, at which the asset or assets are sold as quickly as possible, such as at an auction.

Free Cash Flow-we discourage the use of this term. See Net Cash Flow.

Going Concern-an ongoing operating business enterprise. 44 Statement on Standards for Valuation Services No. 1

Going Concern Value-the value of a business enterprise that is expected to continue to operate into the future. The intangible elements of Going Concern Value result from factors such as having a trained work force, an operational plant, and the necessary licenses, systems, and procedures in place. Goodwill-that intangible asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified.

Goodwill Value-the value attributable to goodwill.

Guideline Public Company Method-a method within the market approach whereby market multiples are derived from market prices of stocks of companies that are engaged in the same or similar lines of business and that are actively traded on a free and open market.

Income (Income-Based) Approach-a general way of determining a value indication of a business, business ownership interest, security, or intangible asset using one or more methods that convert anticipated economic benefits into a present single amount.

Intangible Assets-nonphysical assets such as franchises, trademarks, patents, copyrights, goodwill, equities, mineral rights, securities, and contracts (as distinguished from physical assets) that grant rights and privileges and have value for the owner.

Internal Rate of Return-a discount rate at which the present value of the future cash flows of the investment equals the cost of the investment.

Intrinsic Value-the value that an investor considers, on the basis of an evaluation or available facts, to be the "true" or "real" value that will become the market value when other investors reach the same conclusion. When the term applies to options, it is the difference between the exercise price and strike price of an option and the market value of the underlying security.

Invested Capital-the sum of equity and debt in a business enterprise. Debt is typically (a) all

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interest-bearing debt or (b) long-term, interest-bearing debt. When the term is used, it should be supplemented by a specific definition in the given valuation context. Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset 45

Invested Capital Net Cash Flows-those cash flows available to pay out to equity holders (in the form of dividends) and debt investors (in the form of principal and interest) after funding operations of the business enterprise and making necessary capital investments.

Investment Risk-the degree of uncertainty as to the realization of expected returns.

Investment Value-the value to a particular investor based on individual investment requirements and expectations. {NOTE: in Canada, the term used is "Value to the Owner".}

Key Person Discount-an amount or percentage deducted from the value of an ownership interest to reflect the reduction in value resulting from the actual or potential loss of a key person in a business enterprise.

Levered Beta-the beta reflecting a capital structure that includes debt.

Limited Appraisal-the act or process of determining the value of a business, business ownership interest, security, or intangible asset with limitations in analyses, procedures, or scope . Liquidity-the ability to quickly convert property to cash or pay a liability.

Liquidation Value-the net amount that would be realized if the business is terminated and the assets are sold piecemeal. Liquidation can be either "orderly" or "forced."

Majority Control-the degree of control provided by a majority position.

Majority Interest-an ownership interest greater than 50% of the voting interest in a business enterprise.

Market (Market-Based) Approach-a general way of determining a value indication of a business, business ownership interest, security, or intangible asset by using one or more methods that compare the subject to similar businesses, business ownership interests, securities, or intangible assets that have been sold.

Market Capitalization of Equity-the share price of a publicly traded stock multiplied by the number of shares outstanding.

Market Capitalization of Invested Capital-the market capitalization of equity plus the market value of the debt component of invested capital.

Market Multiple-the market value of a company's stock or invested capital divided by a company measure (such as economic benefits, number of customers).

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Marketability-the ability to quickly convert property to cash at minimal cost.

Marketability Discount-see Discount for Lack of Marketability.

Merged and Acquired Method-a method within the market approach whereby pricing multiples are derived from transactions of significant interests in companies engaged in the same or similar lines of business.

Mid-Year Discounting - a convention used in the Discounted Future Earnings Method that reflects economic benefits being generated at midyear, approximating the effect of economic benefits being generated evenly throughout the year.

Minority Discount-a discount for lack of control applicable to a minority interest.

Minority Interest-an ownership interest less than 50% of the voting interest in a business enterprise.

Multiple-the inverse of the capitalization rate.

Net Book Value-with respect to a business enterprise, the difference between total assets (net of accumulated depreciation, depletion, and amortization) and total liabilities as they appear on the balance sheet (synonymous with Shareholder's Equity). With respect to a specific asset, the capitalized cost less accumulated amortization or depreciation as it appears on the books of account of the business enterprise.

Net Cash Flows-when the term is used, it should be supplemented by a qualifier. See Equity Net Cash Flows and Invested Capital Net Cash Flows.

Net Present Value-the value, as of a specified date, of future cash inflows less all cash outflows (including the cost of investment) calculated using an appropriate discount rate. Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset 47

Net Tangible Asset Value-the value of the business enterprise's tangible assets (excluding excess assets and non-operating assets) minus the value of its liabilities.

Nonoperating Assets-assets not necessary to ongoing operations of the business enterprise. {NOTE: in Canada, the term used is "Redundant Assets".}

Normalized Earnings-economic benefits adjusted for nonrecurring, noneconomic, or other unusual items to eliminate anomalies and/or facilitate comparisons.

Normalized Financial Statements-financial statements adjusted for non-operating assets and liabilities and/or for nonrecurring, noneconomic, or other unusual items to eliminate anomalies and/or facilitate comparisons. Orderly Liquidation Value-liquidation value at which the asset or assets are sold over a reasonable period of time to maximize proceeds received.

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Premise of Value-an assumption regarding the most likely set of transactional circumstances that may be applicable to the subject valuation; for example, going concern, liquidation.

Present Value-the value, as of a specified date, of future economic benefits and/or proceeds from sale, calculated using an appropriate discount rate.

Portfolio Discount-an amount or percentage deducted from the value of a business enterprise to reflect the fact that it owns dissimilar operations or assets that do not fit well together.

Price/Earnings Multiple-the price of a share of stock divided by its earnings per share.

Rate of Return-an amount of income (loss) and/or change in value realized or anticipated on an investment, expressed as a percentage of that investment.

Redundant Assets-see Nonoperating Assets.

Report Date-the date conclusions are transmitted to the client.

Replacement Cost New-the current cost of a similar new property having the nearest equivalent utility to the property being valued. 48 Statement on Standards for Valuation Services No. 1

Reproduction Cost New-the current cost of an identical new property.

Required Rate of Return-the minimum rate of return acceptable by investors before they will commit money to an investment at a given level of risk.

Residual Value-the value as of the end of the discrete projection period in a discounted future earnings model.

Return on Equity-the amount, expressed as a percentage, earned on a company's common equity for a given period.

Return on Investment-See Return on Invested Capital and Return on Equity.

Return on Invested Capital-the amount, expressed as a percentage, earned on a company's total capital for a given period.

Risk-Free Rate-the rate of return available in the market on an investment free of default risk.

Risk Premium-a rate of return added to a risk-free rate to reflect risk.

Rule of Thumb-a mathematical formula developed from the relationship between price and certain variables based on experience, observation, hearsay, or a combination of these; usually industry specific.

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Special Interest Purchasers-acquirers who believe they can enjoy post-acquisition economies of scale, synergies, or strategic advantages by combining the acquired business interest with their own.

Standard of Value-the identification of the type of value being utilized in a specific engagement; for example, fair market value, fair value, investment value.

Sustaining Capital Reinvestment-the periodic capital outlay required to maintain operations at existing levels, net of the tax shield available from such outlays.

Systematic Risk-The risk that is common to all risky securities and cannot be eliminated through diversification. The measure of systematic risk in stocks is the beta coefficient. Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset 49

Tangible Assets-physical assets (such as cash, accounts receivable, inventory, property, plant and equipment, etc.).

Terminal Value-See Residual Value.

Transaction Method-See Merger and Acquisition Method.

Unlevered Beta-the beta reflecting a capital structure without debt.

Unsystematic Risk-the risk specific to an individual security that can be avoided through diversification.

Valuation-the act or process of determining the value of a business, business ownership interest, security, or intangible asset.

Valuation Approach-a general way of determining a value indication of a business, business ownership interest, security, or intangible asset using one or more valuation methods.

Valuation Date-the specific point in time as of which the valuator's opinion of value applies (also referred to as "Effective Date" or "Appraisal Date").

Valuation Method-within approaches, a specific way to determine value.

Valuation Procedure-the act, manner, and technique of performing the steps of an appraisal method.

Valuation Ratio-a fraction in which a value or price serves as the numerator and financial, operating, or physical data serve as the denominator.

Value to the Owner-see Investment Value.

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Voting Control-de jure control of a business enterprise.

Weighted Average Cost of Capital (WACC)-the cost of capital (discount rate) determined by the weighted average, at market value, of the cost of all financing sources in the business enterprise's capital structure.

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Appendix C: Valuation Analyst Credentials and Certification

David Sheives, CVA, CFE

Experience and Qualifications: David Smith is the senior director of Summit Valuation Advisors. He has been retained by business owners, attorneys and accountants in two principal disciplines:

Business Valuation and Intangible Asset Appraisal Economic Litigation Support

As a Certified Valuation Analyst, Mr. Smith brings to his clients a unique combination of professional appraisal and financial analysis skills. He is qualified by virtue of his training, skill, experience, and professional credentials to appraise the Fair Market Value or Fair Value of going concerns, minority interests, start-ups, liquidations, and specific intangible assets. He has valued many kinds of businesses and business intangible assets in the service, real estate, technology, manufacturing, and professional service business industries. Assignments in Litigation Support include the value of business interests in marital dissolution litigation. Mr. Smith is a Certified Valuation Analyst (CVA) - a professional designation awarded by the National Association of Certified Valuation Analysts - and is tested and certified in Business Valuation. The designation requires proof of extensive business appraisal knowledge, completion of a course of study specified by the Association, submission of business valuation reports to the Board of Examiners, successful completion of an examination

Education:

Undergraduate Education BBA, University of Houston, Accounting (1991)

Professional Credentials:

Certified Valuation Analyst (CVA); National Association of Certified Valuators and Analysts, Business Valuation Certified Fraud Examiner (CFE): Association of Certified Fraud Examiners Board Member: University of Houston Accounting Advisory Board

Summary of Consulting Engagements:

With more nearly 25 years of financial and business experience, Mr. Smith has performed many and varied business valuation and economic calculations in his career. Representative projects for which he has been responsible are provided below.

Business Valuation:

• Purchase Price Allocation (FAS141) of numerous acquisitions of an oil and gas concern.

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• Fair Market Valuation of a transportation company.

• Fair Market Valuation of an irrigation business

• Fair Market Valuation of numerous electronic security businesses

• Fair Valuation of a resort in a litigated shareholder dispute.

• Valuation of Family Limited Partnership and Limited Corporations, holding principally real estate and/or marketable securities.

• Valuation of intangible assets, such as computer app in an FLP.

• Liquidation Valuation of a Law Firm in a death of partner

Economic Litigation Support Samples:

• In Harris County Family Court, valuation of a limousine company.

• In Harris County Civil Court, valuation of a restaurant and bar in a breach of contract action.

• Lost wages calculation in a wrongful employment termination.

• Lost profit calculation in a contractor dispute.

General Management Consulting:

• Development of a business plan, detailed financial projections, and management presentation for an oil and gas business intelligence company for presentation to venture capital groups.

• Consultation with a factoring business on the development of software for the purpose of calculating discounts and investor returns.

• Consultation with a landscape construction and maintenance company on the implementation of accounting software and internal controls.

• Consultation with an industrial supply business to work out financial reporting deficiencies and payable issues.

Previous Experience:

Before starting Summit Valuation Advisors, Mr. Smith worked as the Chief Operating Officer at Gainer Donnelly & Desroches, CPA’s and in the same position at Malone Bailey, CPA’s. Prior to his public accounting experience Mr. Smith founded and operated a large electronic security services firm. In addition, Mr. Smith worked as a Chief Financial Officer for two separate companies in the manufacturing and alarm business.

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Historical Financials

Income Statement 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 Period Duration 12 month(s) 12 month(s) 12 month(s) 12 month(s) 12 month(s) Sales (Income) $664,187.00 $773,555.00 $719,285.00 $659,974.00 $1,191,127.00 Cost of Sales (COGS) $566,417.00 $601,700.00 $554,128.00 $473,358.00 $897,681.00 Gross Profit $97,770.00 $171,855.00 $165,157.00 $186,616.00 $293,446.00 Depreciation $3,053.00 $1,775.00 $1,775.00 $1,775.00 $158,551.00 Overhead or S,G,& A Expenses $33,448.00 $50,914.00 $17,944.00 $70,442.00 $79,967.00 Operating Profit $61,269.00 $119,166.00 $145,438.00 $114,399.00 $103,399.00 Net Profit Before Taxes $61,269.00 $119,166.00 $145,438.00 $114,399.00 $103,399.00 Net Income $61,269.00 $119,166.00 $145,438.00 $114,399.00 $103,399.00

Balance Sheet 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 Cash (Bank Funds) $0.00 $0.00 $10,052.00 $951.00 $351.00 Total Current Assets $0.00 $0.00 $10,052.00 $951.00 $351.00 Gross Fixed Assets $127,692.00 $127,692.00 $127,692.00 $127,692.00 $316,742.00 Accumulated Depreciation $69,806.00 $71,581.00 $73,356.00 $75,131.00 $233,682.00 Net Fixed Assets $57,886.00 $56,111.00 $54,336.00 $52,561.00 $83,060.00 Total Assets $57,886.00 $56,111.00 $64,388.00 $53,512.00 $83,411.00 Short Term Debt $55,092.00 $10,301.00 $3,540.00 $2,540.00 $4,040.00 Total Current Liabilities $55,092.00 $10,301.00 $3,540.00 $2,540.00 $4,040.00 Total Liabilities $55,092.00 $10,301.00 $3,540.00 $2,540.00 $4,040.00 Common Stock $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 Ending Retained Earnings $1,794.00 $44,810.00 $59,848.00 $49,972.00 $78,371.00 Total Equity $2,794.00 $45,810.00 $60,848.00 $50,972.00 $79,371.00 Total Liabilities + Equity $57,886.00 $56,111.00 $64,388.00 $53,512.00 $83,411.00

Statement of Retained Earnings 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 Beginning Retained Earnings $16,725.00 $1,794.00 $44,810.00 $59,848.00 $49,972.00 Net Income $61,269.00 $119,166.00 $145,438.00 $114,399.00 $103,399.00 Dividends Paid $1,200.00 $1,150.00 $55,400.00 $49,275.00 $0.00 Calculated Ending Retained Earnings $1,794.00 $44,810.00 $59,848.00 $49,972.00 $78,371.00 Ending Retained Earnings $1,794.00 $44,810.00 $59,848.00 $49,972.00 $78,371.00

Statement of Cash Flow

12/31/2013 12/31/2014 12/31/2015 12/31/2016 Sales (Income) $773,555.00 $719,285.00 $659,974.00 $1,191,127.00 Cost of Sales (COGS) $601,700.00 $554,128.00 $473,358.00 $897,681.00 Gross Profit $171,855.00 $165,157.00 $186,616.00 $293,446.00 Depreciation $1,775.00 $1,775.00 $1,775.00 $158,551.00 Overhead or S,G,&A Expenses $50,914.00 $17,944.00 $70,442.00 $79,967.00 Operating Profit $119,166.00 $145,438.00 $114,399.00 $103,399.00 Net Profit Before Taxes $119,166.00 $145,438.00 $114,399.00 $103,399.00 Net Income $119,166.00 $145,438.00 $114,399.00 $103,399.00 Add Back Depreciation $1,775.00 $1,775.00 $1,775.00 $158,551.00 Cash Flow from Operations $120,941.00 $147,213.00 $116,174.00 $261,950.00 Capital Expenditures $0.00 $0.00 $0.00 -$189,050.00 Cash Flow from Investments $0.00 $0.00 $0.00 -$189,050.00 Increase (Decrease) in Short Term Debt -$44,791.00 -$6,761.00 -$1,000.00 $1,500.00 Dividends Paid / Withdrawals $1,150.00 $55,400.00 $49,275.00 $0.00 Unexplained Changes to Retained Earnings -$75,000.00 -$75,000.00 -$75,000.00 -$75,000.00 Cash Flow from Financing Activities -$120,941.00 -$137,161.00 -$125,275.00 -$73,500.00 Net Free Cash Flow $0.00 $10,052.00 -$9,101.00 -$600.00 Beginning Total Cash $0.00 $0.00 $10,052.00 $951.00 Ending Total Cash $0.00 $10,052.00 $951.00 $351.00

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