Nanotech Security Corp. is a company in British Columbia which specializes in globally recognized anti-counterfeiting products. Its consolidated cash flow statement for the years ended September 30, 2017 and 2016, is adapted and reproduced below:

Required

1. Which format did Nanotech Security Corp. use for reporting cash flows from operating activities?

2. What was Nanotech Security’s largest source of cash during the year ended September 30, 2017? During the previous year?

3. What was Nanotech Security’s largest use of cash during the year ended September 30, 2017?

4. Which section—operating, investing, or financing—did Nanotech Security have the largest source of cash shown for 2017 and 2016? Comment on your findings.

5. During the year ended September 30, 2017, Nanotech Security has a large negative cash flow from operating activities. Does this mean Nanotech Security is expanding, downsizing, or remaining stable?

6. How is the business’s cash balance doing overall?

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NANOTECH SECURITY CORP. Consolidated Cash Flow Statement (adapted*) For the Years Ended September 30 (In Canadian dollars) 2017 2016 Cash flows provided by (used in): Operating activities: Net loss from continuing operations $ (3,853,853) $(7,658,910) Items not involving cash: Depreciation and amortization 2,917,883 3,077,997 Share-based compensation 921,198 661,786 Accretion of convertible debentures 589,858 80,825 Other (27,570) (27,570) Deferred income taxes (162,797) Non-cash working capital changes (note 15(a)) (720,420) 371,023 (172,904) (3,657,646) Discontinued operations (note 18): Net loss from discontinued operations (900,279) (170,895) Depreciation 12,804 17,689 Items not involving cash 313,162 (91,976) Cash used in operating activities (747,217) (3,902,828) Investing activities: Purchase of property and equipment (106,944) (148,752) Cash used in investing activities (106,944) (148,752) Financing activities: Issuance of shares for options exercised 223,000 197,400 Proceeds on financing, net of costs (note 10(a)) 12,486,784 Repayment of note payable (note 8) (3,000,000) Repayment of convertible debentures (note 9) (1,370,000) Proceeds on issuance of convertible debentures, net of costs 4,120,289 Cash provided by financing activities 8,339,784 4,317,689 Effect of foreign exchange on cash and cash equivalents 85,605 24,654 Increase in cash and cash equivalents 7,571,228 290,763 Cash and cash equivalents, beginning of year 3,312,691 3,021,928 Cash and cash equivalents, end of year $10,883,919 $ 3,312,691