1. Assess past financial performance using the statement of cash flows and ratio analysis?

Exhibit 2 STATEMENTS OF RETAINED EARNINGS (UNAUDITED) (for years ending June 30) Exhibit 3 BALANCE SHEETS (UNAUDITED) (as at June 30) \begin{tabular}{|c|c|c|c|c|c|c|} \hline \multirow[t]{2}{*}{\begin{tabular}{l} ASSETS \\ Current assets: \end{tabular}} & \multicolumn{2}{|r|}{2007} & \multicolumn{2}{|r|}{2006} & \multicolumn{2}{|r|}{2005} \\ \hline & $ & 118,550 & $ & 72,576 & \$ & 115,166 \\ \hline Accounts receivable & & 138,668 & & 249,580 & & 309,476 \\ \hline Inventory & & 5,226 & & 6,634 & & 10,722 \\ \hline Prepaid expenses & & - & & 9,640 & & - \\ \hline Income tax recoverable & & 4,340 & & - & & - \\ \hline Other current assets & & 1,730 & & - & & 10.916 \\ \hline Total current assets & $ & 268,514 & & 338,430 & $ & 446,280 \\ \hline \multicolumn{7}{|l|}{ Fixed assets: } \\ \hline Land & $ & 49,070 & $ & - & $ & - \\ \hline Construction in progress 1 & & 31,312 & & - & & - \\ \hline Equipment, cost & & 149,416 & & 149,416 & & 60,740 \\ \hline Furniture and fixtures, cost & & 4,274 & & 4,274 & & 4,274 \\ \hline Forms and fittings, cost & & 100,948 & & 100,948 & & 100,948 \\ \hline & $ & 254,638 & & 254,638 & $ & 165,962 \\ \hline Less: accumulated amortization & & 180,568 & & 136,718 & & 136,652 \\ \hline Net fixed assets & $ & 74,070 & & 117.920 & S_ & 29,310 \\ \hline Total fixed assets & $ & 154,452 & & 117,920 & $ & 29,310 \\ \hline Other assets & & 538 & & 566 & & 596 \\ \hline TOTAL ASSETS & s & 423,504 & & 456,916 & s & 476,186 \\ \hline \multicolumn{7}{|l|}{ LIABILITIES } \\ \hline \multicolumn{7}{|l|}{ Current liabilities: } \\ \hline Accounts payable & $ & 58,084 & $ & 61,626 & \$ & 115,532 \\ \hline Notes payable & & 431 & & 179 & & 21,427 \\ \hline Accrued expenses & & 4,076 & & 4,676 & & 6,748 \\ \hline Taxes payable & & 4,806 & & 7,016 & & 19,206 \\ \hline Current portion long-term debt & & 17,988 & & 15,210 & . & \\ \hline Total current liabilities & $ & 85,385 & & $88,707 & s & 162,913 \\ \hline Long-term loan, Bank of Ontario 2 & & 36,004 & & 53,994 & & - \\ \hline Total liabilities & $ & 121,389 & & 142,701 & $ & 162,913 \\ \hline \multicolumn{7}{|l|}{ Shareholders' equity } \\ \hline Common stock & $ & 6 & $ & 6 & $ & 6 \\ \hline Retained earnings & & 302,109 & & 314.209 & & 313.267 \\ \hline Total shareholders' equity & $ & 302,115 & & 314.215 & s & 313,273 \\ \hline TOTAL LIABILITIES \& EQUITY & s & 423,504 & & 456,916 & s & 476,186 \\ \hline \end{tabular} Exhibit 4 STATEMENT OF CASH FLOWS (UNAUDITED) (for years ending June 30) \begin{tabular}{|c|c|c|} \hline \multirow{2}{*}{\multicolumn{3}{|c|}{ OPERATIONS }} \\ \hline & & \\ \hline Net income & $(12,100) & $942 \\ \hline \multicolumn{3}{|l|}{ Adjustments to cash basis: } \\ \hline Amortization & $31,700 & $19,214 \\ \hline Accounts receivable & 110,912 & 59,896 \\ \hline Inventory & 1,408 & 4,088 \\ \hline Prepaid expenses & 9,640 & (9,640) \\ \hline Other current assets & (1,730) & 10,916 \\ \hline Income tax recoverable & (4,340) & - \\ \hline Accounts payable & (3,542) & (53,906) \\ \hline Notes payable & 252 & (21,248) \\ \hline Accrued expenses & (600) & (2,072) \\ \hline Taxes payable & (2,210) & (12,190) \\ \hline Net cash flow from operations & $129,390 & $(4,000) \\ \hline \multicolumn{3}{|l|}{ FINANCING ACTIVITIES } \\ \hline Current portion long-term debt & $2,778 & $15,210 \\ \hline Long-term loan, Bank of Ontario & (17.990) & 53.994 \\ \hline Net cash flow from financing activities & $(15,212) & $69,204 \\ \hline \multicolumn{3}{|l|}{ INVESTING ACTIVITIES } \\ \hline Land & $(49,070) & $ \\ \hline Construction in progress & (31,312) & - \\ \hline Fixed assets & 12,150 & (107,824) \\ \hline Other assets & 28 & 30 \\ \hline Net cash flow from investing activities & $(68,204) & $(107,794) \\ \hline Net cash flow & $45,974 & $(42,590) \\ \hline Beginning cash & $72.576 & $115.166 \\ \hline Ending cash & $118.550 & $72.576 \\ \hline \end{tabular} Source: company files