Case Analysis : ' Prison Supplies Inc '

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Executive Summary

Objective
• To conduct preliminary due diligence on UniCal Prison Supplies, Inc to determine if the providing debt financing to the company has meaningful profit potential.
Background
• UniCal Prison Supplies Inc. is a 25-year-old wholesale distribution company that specializes in business-to-government (B2G) procurement services.
• The company is experiencing cash flow problems and has not achieved profitability for the past five years. Management is seeking a $2 Million private long-term loan.
• The company has a history of successfully winning lucrative government contracts.
Industry Summary
• U.S. federal government buys nearly $100 billion worth of goods and services from small businesses each year.
• UniCal has gone through the validation process and is an approved vendor with several government agencies across the nation.
Financial Summary
• Ineffective oversight of the company’s financial management and internal controls made it difficult to determine adequate cash flow to service debt.
• The current profit margin is unsustainable and is well below the break-even point.
• The company has utilized 95% of its $1.5 million credit line with Lloyds Bank.
• Lloyds Bank has a blanket lien on all company assets, including the personal assets of the company’s owner.
Risk Summary
• Stronger competitors in the industry will dominate and dilute the UniCal’s market share.
• Due to negative cash flow, the company has a history of reliability problems,

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