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DEC-08-2000 16:15 E IDE SA I LL Y LLP P.02 CITY OF ROSEVILLE .~ IC SERIVCES, INC. MN INVESTMENT FUND LOAN DRAFT Comments and Observations November 29, 2000 Finane",l statements - The Company's financials statements submitted include reviewed (unaudited) financial statements for the years ended December 31, 1999 and 1998 and intemal financial information for the year ended December 31, 1997. The December 31, 1999 reflects negative working capital of $193,000 and a net loss ofS149,OOO. The Company is an S-corporation and appears to make distributions in amounts sufficient to pay the stockholder's individual income taxes. (Should consider requesting corporate and individual income tax returns for future loan applications). The balance sheet includes a receivable from JTD Industrial Supply, Inc. in the amount of $166,269,which is owned by John Koch. The projected financial statements do not indicate any repayment will be made through 2002. Projections - The projections indicate net income of $554,000 for 200 1 and $1,883,000 for 2002. Because this is an S-corporation, 5222,000 and $753,000, respectively, is shown to be distributed for those years. It is unclear what the negative line of credit (LOC) at Heritage represents. There is no change in cash, and this might indicate excess funds available for debt repayment. If actual results approximate projections, the Company would be in good financial condition at December 31,2002 and would appear to be able to adequately service the requested loan. Persona/financial statement (9/8/00) - The statement indicates Mr. Koch has recently loaned the Company S130,000. It is unclear what basis or support Mr. Koch would have for a value of ICS at $5,340,000 or $250,000 for JTD. He does not appear to have any significant personaJ financial resources (exclusive of the ownership of these companies, homes and personal property) that would support a personal guarantee. The statement also indicates $44,000 of credit card debt. Receivable and payable aging summams - The receivable aging as of October 31, 2000 indicates that accounts receivable are in good condition. It appears two customer names have been deleted from the schedule. The accounts payable aging indicates the Company may be stnIggling with cash flow or potentially have some disputed claims. $110,000 is over 60 days past due. Other eomments - The reference from Heritage Bank appears favorable. The Duns Financial Profile indicates a BB3 rating. The BB refers to net worth between $200 and S300k. The 3 represents a fair credit rating. TOTAL P.02