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 - 1 - 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 - 2 - 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 - 3 - 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.