Retail Data System Analysis

MGC Bank04/02/2012

Loan Requests

$14,000,000 ROLC Used for working capital Price: WSJ prime + 1.00% floating Matured 364 days from closing

$1,500,000 term loan Used for purchasing new equipments Price: 5.00% fixed 84 - months

Company Background

Limited partnership Founded by Bill Smith Based in Denver Low cost, turkey design products New customer: Albertsons Current customer base:

80% grocery stores 15% electronic stores Miscellaneous

Management and Ownership Bill Smith (age 71)

Chairman of the Board and CEO 43% of general partnership

Frank Smith (age 46) President MBA from Duke University 28.5% of general partnership CEO candidate

George Smith (age 44) CFO CPA 28.5% of general partnership

Industry Analysis

Recent trends indicate that as technology advances, more customers are updating to newer equipment/services, causing demand for RDS’s products to increase.

Oil price impact Current economic impact

Strengths

Credit worthy customers Secured debt Marketable inventory

People are willing to buy products Strong internal financing

Solid ratios

Weakness

Weaknesses   Lack of external financing Low cash balance Poor liquidity

Possible future losses Inefficiency

Obsolete equipment

Competitors

Major competitors: IBM, NCR, Fujitsu, and Honeywell

Competitors are global companies

Collateral

Accounts Receivables

Inventory

Guarantors

Accounts Receivables

Main customers: Albertsons Grocery Stores Kroger Grocery Stores

As of 12/31/2011, 90% of A/Rs are expected to be collected within in 90 days

Inventory

Raw materials

Work in process

Finished goods

Guarantors

Jointly and severally guaranteed by Bill Smith Frank Smith Steve Smith

Loan Agreement CovenantsPositive Covenants Bank will be allowed to inspect inventory,

receivables, and property periodically Borrower must maintain following financial ratios:

Variable cost ratio <85%▪ 2011: 82.71%

Debt coverage ratio >1.25▪ 2011: 1.47

Current ratio >1.0▪ 2011: 1.42

Quick ratio >.70▪ 2011: .64

Loan Agreement Covenants

Negative Covenants Total officers, directors, and owner’s

compensation cannot exceed 1% of total sales

No additional debt without bank approval

No mergers, consolidations, or acquisitions without bank approval

Financial Statement Analysis

Profitability Cash Flow Liquidity Asset Quality Asset Management Leverage Debt Coverage

Profitability

Increased sales in 2011 Decreasing gross margin High COGS Low efficiency

OIROA 1.85% ROA 2.02%

One time sale of real estate Too much bonuses for management

Cash Flow

Higher level of sales

Positive operating cash flow

Need more debt to finance its expansion

Liquidity

Current ratio 1.42 Quick ratio 0.42 High marketable inventory High working capital Need more short-term debt

Asset Quality

Good quality accounts receivable

Marketable inventories

24.5% of the total assets are fixed assets

Asset Management

Not effectively using fixed assets Low fixed assets turnover Old machineries

Effectively using current assets High accounts receivable turnover High inventory turnover

Leverage

Main source of capital: debt High debt to equity ratio Increasing need for capital

Increasing sales High financial leverage risk

Due to low equity capital

Debt Coverage

Current debt ratio: 1.47 To make RDS can service its debt:

Low uncollectible accounts Reasonable owner compensation Favorable cash flow