by Mark Smit, Hamernik LLC

January 2008

As we look back at 2007, it is an appropriate time to recap what businesses and industries we've worked with and to review where we've been able to add value for our clients. We've provided a diverse set of services in a diverse variety of industries. Some of the services we've provided include financial analysis & modeling, weekly budgeting and monitoring of cash flows, forecasting and valuation, buyer due diligence, serving as the appointed Receiver, balance sheet restructuring, acting as Chief Restructuring Officer, negotiation of creditor claims, negotiation between/among partners, liquidation analysis and monitoring of collateral during wind-down/liquidation. Some of the industries in which we've worked include restaurant/hospitality, land development/clearing, distribution, construction, mining, real estate development, automotive retail, not-for-profit assisted living, various manufacturing, and others. In total, we've worked on 34 unique engagements in the past year, adding to the firm's resume of over 200 clients served over the past 10 years. Most of our clients this year were privately-held businesses, typically with revenues between $5 and $50 million. Although there was considerable variety in the services we provided, we continued to find our services to be transaction-oriented and focused on helping executives and their professional advisors solve the one-time or on-going critical problems facing them in today's marketplace. The following should provide a sample of the types of issues we've seen and addressed:

Land Clearing-Heavy Equipment-Construction

In Q1 2007, we were introduced by counsel to a land clearing company which was highly leveraged with secured loans from more than a dozen financial institutions; most were past due 3 or 4 months in payment. Adding complexity, a vendor had filed suit, obtaining a judgment. In addition, the company's payroll taxes were past due, and the IRS had filed it notice of levy and filed liens. Though the company was modestly profitable, the seasonal nature of the business together with the level of debt service it was required to support resulted in severe cash flow issues. Our efforts included an analysis of the current financial situation, preparation of financial and cash flow projections and counsel to the business owner. Using our work product, we engaged in negotiations with the secured lenders, the IRS and creditors to request additional time in exchange for information and to explore each party's willingness to compromise the amount it was owed in order to facilitate an overall balance sheet restructuring. After assembling an RFP for financing and considering alternative options, and after months of negotiations, our client refinanced in early October with a new, single lender. The resulting debt facility was sufficient to pay off the IRS and all secured lenders at closing, and provided the company with a lower effective interest rate, a longer term, and payment structure that mirrors the business' seasonality. The company's cash flow improved by greater than $300,000 per year and Hamernik's fees were effectively fully recovered by the company vis-à-vis reductions or compromises in creditor claims. Moreover, consolidating all debt to one lender has streamlined administrative efforts for the company. We are happy to report that 2007 was the company's best year ever and that we continue to consult with the business.

Distributor of Promotional Products

We were involved throughout 2007 with a leading distributor/light-manufacturer of promotional products that had previously earned an INC 500 listing. The company initially engaged us to locate suitable refinancing within a tight deadline, as its existing lender was scheduled to assess a significant extension fee. After we determined and modeled the company's projected working capital needs, we prepared a financial model with projections which we utilized to obtain multiple lender proposals. During the refinancing process, the company became familiar with our skills and competencies and re-engaged us as consultants to assist management evaluate and improve the performance of the business. The company had experienced much success in its past, growing from a small start-up to $20 MM company. The company's performance had suffered, however, in recent years following the decline of a successful product line and a related strategic alliance. To help reverse the decline, we worked with management to develop a measurable, implementable business plan by division. Starting with the projection we had already developed based on the current operating situation, we refined the projection into clear divisions, reflected each division's unique cost structure. We then assisted the company in setting clear targets for each division as well as initiatives to achieve each target. Most importantly, we assisted management in assigning responsibility to divisional leaders for each division. Going forward, management will have the necessary tools to assess each division's progress in meeting its targets.

Restaurant/Hospitality

Earlier in 2007 we became involved with a unique restaurant/coffee shop/bar, which had been in business for approximately a year and was facing typical early-stage cash flow issues. Its senior lender was concerned and had started to look at exit options, including foreclosure. We assessed the business' financial situation, benchmarking it versus the industry, and reviewed margin and product mix performance. After our analysis and assembling short-term financial projections, we concluded that the establishment was controlling expenses and should operate with solid margins and positive EBITDA. We then assisted the company in negotiations with the lender allowing the business more time to explore recapitalization options. The business is still in operations and records monthly improvements year-over-year.

Distributor of Construction Supplies, Fasteners and MRO

One of our more significant engagements during the past year was with a distributor of construction products and MRO supplies. This family-owned business had a long history of providing exceptional service to customers throughout the Midwest but had experienced significant losses in recent years as a result of the changing competitive environment, the loss of exclusive territories, a slowing housing market and a cost structure which had become out of line in relation to the company's revenue. The company's bank was very concerned and had placed the company on short-term, 60-day extensions. Hamernik was introduced to the company by its outside accountants, Katz, Sapper & Miller. We immediately began work counseling management on head count reductions and related issues. Thereafter, we continued by assessing the company's current financial situation, assessing opportunities for improvement, evaluating certain strategic alliances in which the company had invested, evaluating the number of branches the company operated, defining top selling products, evaluating pricing and analyzing inventory. Our work initially culminated in the development of a plan to return to profitability and a report to the shareholders outlining our assessment and recommended actions. The shareholders then appointed an individual of the firm as Chief Restructuring Officer with authority to develop solutions and take actions as determined necessary, even when they may conflict with existing management's vision and plan. Over the following months, Hamernik implemented the following restructuring initiatives (among other actions):

Consolidated warehouses and arranged for the sale of the excess building, Identified slow moving inventory and monetized over $1 million of inventory to cash through special efforts, Closed satellite offices and warehouses, Terminated officers and reduced workforce, Modified insurance plans and employee benefits, Analyzed and implemented price increases and shortened the lead time to market, Began the process of re-considering how pricing models are built, Significantly modified organizational structures to eliminate waste and to break-down organizational barriers and inefficiencies, Participated in negotiating a new office lease and in the transition of the office into the new space, and Terminated a joint venture which required funding and was incurring losses.

During the course of implementing these initiatives, Hamernik managed the company's banking relationship, avoiding the bank moving to foreclosure or filing a replevin action. Further, to maximize leverage and impact, and to promote sustainability, Hamernik interviewed and identified employees to accept and be delegated responsibility for each of these initiatives. Thoughout the process of implementing these initiatives, Hamernik prepared and maintained weekly and monthly financial projections, which served several purposes including assisting the company in its negotiations with its lender in addition to functioning as effective performance monitoring and management tools. The projections were also used to perform sensitivity analyses given various assumptions. We also performed a liquidation analysis, completing the assessment of shareholder options about whether to operate and refinance, liquidate or sell. Upon establishing that the company was viable and able to cash flow supporting debt, and after becoming able to demonstrate that the earnings would meet a buyer's criteria, Hamernik counseled to the shareholders along with their advisors in the selling of the company to maximize value. When the company entered into negotiations with the buyer, the projection tools and models were utilized by the company and buyer, and the buyer's lender, as a primary basis in negotiations and structuring the financing. The sale was consummated in early October.

Sand/Gravel Pit/Ready-Mix Cement/Concrete

In February, a local bank had come to an impasse with its borrower and was seeking the appointment of a receiver. Hamernik was considered for its ability to assess the business and to make a determination about whether it should continue to operate, and also because, if the business was viable, Hamernik would be able to readily call upon its relationships for refinancing, therein providing the bank, and other creditors, liquidity. Upon appointment as Receiver, we assessed the business and modified the operating structure to maximize assets and mitigate liabilities, monitored inventory and immediately retained a national firm, specialized in this industry, to market and sell the assets. After several months of marketing and negotiations, no acceptable offer was obtained. During the months in which the assets were marketed, Hamernik built financial information and forecasts so as to communicate with alternative lenders and capital sources. Hamernik delivered one non-conventional proposal for recapitalizing all the owner's businesses (including those outside the receivership), which the owner ultimately declined in preference for pursuing another more conventional and more favorably priced refinancing option, which failed to transpire. Again, the bank and the borrower were at an impasse. The Receiver and his counsel orchestrated a negotiation for the benefit of both parties. In exchange for capping the deficiency claim against the shareholder's guarantee, the bank was given the property interest, thereby eliminating the bank's concern that the borrower would file for bankruptcy protection and protract the bank's recovery time. Approximately 45 days later, the assets were liquidated at sheriff sale with reasonable returns under the prevailing conditions.

HVAC Distributor/Installer

In August, we were contacted by counsel to a bank to assist the bank in assessing and understanding the financial affairs of its borrower, a distributor and installer of HVAC systems. The bank and its counsel had prepared in draft form a Complaint and Motion For The Appointment of Receiver because it appeared that the company was faltering and because communications and information flow between the bank and borrower were poor. In less than two weeks, we assessed the collateral and cash flow and performed a liquidation analysis, concluding that the business was not viable and that it should be immediately shuttered to eliminate erosion of further value. In our report to the bank, we addressed that we felt that there was an opportunity to maximize value and minimize costs by seeking an alternative approach to the receivership. During our work, and through discussion and presentation of the facts and options to the borrower, we believed that the borrower came to the same conclusions we arrived at and was now in a position to become more cooperative with the bank, even seeking the bank's assistance in winding up the company's affairs. Without protracted legal battle, the parties came to agreement on how to resolve the situation and joint efforts commenced in monetizing assets for the benefit of both parties.

Residential Real Estate Development/Investment

We were referred by counsel to a local real estate development company whose owner had a strong history of successful development projects but was experiencing cash flow issues as a result of a downturn in the local residential real estate market. Using the company's projections and with inquiry of management, we developed a financial forecast and discounted cash flow analysis to determine the likely cash flows and outcome of each project as well as a fair value estimate of each project. Our projections were used by the borrower and the bank in negotiations over guarantees and to determine the best course of action. In a separate engagement, with another company in the residential real estate market, we were engaged by the managing partner of an investment partnership. When the initial investment objectives could not be obtained because of the severe market conditions adversely affecting residential real estate, the managing partner made a capital call to current investors. The partner engaged us to assist in providing financial information to support the call. Our role was to provide an assessment of the events that occurred through the short history of the partnership, to prepare information for the investors, and to work with counsel to develop recommendations based on current conditions and the financial status of the investment properties and the partners.

Crafts Materials Manufacturer

Another company we are assisting in obtaining financing is a manufacturer that has been in the crafts materials manufacturing business for many years. The company had gone through significant changes in recent years including substantial changes in product lines, the relocation of manufacturing facilities and corporate offices, and the elimination of a division. Through discussions with management and analysis of the historical financial statements, we gained an understanding of the business and determined the significant issues it was currently facing. We then normalized the historical statements, assessing the historical quality of earnings of the company by adjusting for one-time events and/or discontinued operations. Working from management's budget and our normalized historical statements, we prepared financial projections that will be utilized to obtain working capital and long-term financing that will support the company's strategic and business plans. This refinancing is currently in process.

Not for Profit Retirement Home

In 3Q 2007, Hamernik was approached to assess a not for profit agency on behalf of one of its funding sources. The subject retirement home and long-term care facility had incurred losses over the past several years and was facing cash flow issues. It was also under scrutiny of the Indiana Department of Health. Currently ongoing, we have analyzed the agency's financial position and business model, assessed its break-even, evaluated its prospective cash flow, and independently assessed the market it serves with the objective of developing ideas and providing advice for improving revenues, lowering expenses and maximizing cash flow. Our analysis identified that the reported financial numbers were misleading based on one-time events and/or adjustments which impacted other reporting periods and further, revealed opportunities for improved financial control and governance. More recently, we have refined our focus on the agency's strategy and have challenged the board and its management on its mission, suggesting alternatives or modifications for consideration.

Manufacturing

We were approached by the owner of a manufacturing company faced with a decision whether to invest further in a division that had operations in both Ohio and Indiana. The operations had been very successful and profitable over the years, but the owner, who was nearing retirement, and management felt that the division would require further financial commitment to continue to be financially strong and profitable. The owner explained his situation to his attorney who in turn recommended Hamernik to counsel him through the tough decision of whether to invest further. We evaluated the business as it currently operated and counseled with the owner as he considered the opportunities and forecast for the business. Together with the owner, we weighed his personal goals and objectives against the financial commitments he would be making. Ultimately he decided on a strategy to monetize the investment in the division of the company by selling it. Over the course of the next several months, we continued to counsel with the owner and worked closely with him and management to make changes to position the division for improved profitability and cash flow, including a consolidation of its Ohio operations into its Indiana operations. The division was aggressively marketed during which we coordinated the selling efforts, buyer due diligence and negotiations. After extensive negotiations and evaluating different proposals and offers, the owner selected a cash offer for the business that allowed him to retain ownership of the valuable Indiana real estate with the new owner as a tenant. During the course of the year, we helped this owner bring his business challenge into perspective by helping him evaluate and select a decisive course of action from among alternatives, implement a strategy and plan and achieve a result in June 2007 that met his personal goals and objectives.

Automotive Retail Group

We were directly engaged by a lender in regards to its creditor, a multi-location automotive group, after the bank's floorplan auditors determined that the group may be in an out-of-trust position. The bank initially engaged us to help develop a strategy for the first meeting with the group, which included addressing security concerns and the preservation of key data. Through significant interviews of group management and employees, inspection of group financial statements and other records, as well as gaining an understanding of the group's operations, we then validated and quantified the severity of the group's out-of-trust position. After validating the existence of the out-of-trust position, the bank expanded our role to include daily oversight of the group's activities. This involved the on-site monitoring of collateral and all sales transactions, as well as ensuring that all receipts were matched against the appropriate bank liens. We also prepared a liquidation analysis to allow the bank to better understand the value of the collateral. When it became clear that the group was no longer viable, we managed for the bank the closing of operations and facilitated the surrender of collateral to the bank.

About Hamernik, L.L.C. Indianapolis-based Hamernik, L.L.C. specializes in the convergence of strategy and finance, creating and interpreting information to resolve problems and identify opportunities. The firm focuses on working with clients and other professional advisors to develop practical solutions and to prepare and implement plans that coordinate the strategic, operating and financial elements of recovery, reorganization and financial restructuring. Services across most industries include performance improvement, turnaround and workout, viability assessments, interim management, M&A support, insolvency and wind-down services, bankruptcy planning and consultation, lender support, forensic services and litigation support.