John L. Ginger Masonry, Inc. - Page 13

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          the industry.  With respect to profitability, petitioner ranked             
          near the top of Adamson's client portfolio.  Adamson considered             
          petitioner to be a high performer with gross profit margins often           
          exceeding 20 percent.                                                       
               Rick Muth (Muth), an owner of Orco Block Co., characterized            
          Ginger's sales and marketing expertise as "outstanding".  Muth              
          considered petitioner a low credit risk, and he ranked petitioner           
          at the top of its field in quality.                                         
          E. The Recession                                                            
               In late 1989 and early 1990, economic experts had predicted            
          a slowdown in the construction industry with a corresponding                
          "soft landing" for the Southern California residential housing              
          market.  There was no soft landing.  Petitioner did well through            
          July of 1990, and then in August 1990 petitioner's business "fell           
          apart".                                                                     
               In August 1990, the California housing market suffered a               
          severe setback.  When this happened, petitioner's customers, the            
          large housing developers, reevaluated their positions.  Ginger              
          estimated that 50 to 60 percent of petitioner's substantial                 
          contract backlog that existed in July of 1990 was canceled within           
          60 days.  Developers called Ginger about building contracts                 
          already entered into by petitioner.  The developers told Ginger             
          that the jobs were canceled unless petitioner would lower its               
          bids by 8 to 10 percent.  Ginger renegotiated his material                  
          purchases and slashed his bid prices just to stay in business.              




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