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

Net sales Cost of goods sold Gross profit Operating expenses Wages and commissions Rent Provision for doubtful accounts General selling expenses General administrative expenses Amortization Total operating expenses Interest expense Net income before tax Income tax Net income (loss) Exhibit 1 STATEMENT OF EARNINGS (for years ending January 31) Beginning retained earnings Add: net income Less: dividends Ending retained earnings 2006 $2,066,820 1,476,840 $589,980 $306,170 11,100 23,860 132,850 24,360 498,340 33,750 $57,890 $57.890 2005 $(18,460) $1,599,920 1,171,760 $428,160 $253,910 22,200 27,560 104,720 10,300 418,690 29,220 $(19,750) $(19,750) Exhibit 2 STATEMENTS OF RETAINED EARNINGS (for years ending January 31) 2006 $(76,350) 57,890 2005 $(56,600) (19,750) $(76.350) 2004 $930,110 644,190 $285,920 $183,620 19,430 6,710 29,100 76,430 315,290 27,230 $(56,600) $(56.600) 2004 $ (56,600) $(56.600) With the purchase of the land and building in August 2005, rent expense had been eliminated. 2 Previous losses were carried forward, offsetting all taxes owing for 2006. BIS's estimated tax rate was 23 per cent. Net sales Cost of goods sold Gross profit Operating expenses Wages and commissions Rent Provision for doubtful accounts General selling expenses General administrative expenses Amortization Total operating expenses Interest expense Net income before tax Income tax Net income (loss) Exhibit 1 STATEMENT OF EARNINGS (for years ending January 31) Beginning retained earnings Add: net income Less: dividends Ending retained earnings 2006 $2,066,820 1,476,840 $589,980 $306,170 11,100 23,860 132,850 24,360 498,340 33,750 $57,890 $57.890 2005 $(18,460) $1,599,920 1,171,760 $428,160 $253,910 22,200 27,560 104,720 10,300 418,690 29,220 $(19,750) $(19,750) Exhibit 2 STATEMENTS OF RETAINED EARNINGS (for years ending January 31) 2006 $(76,350) 57,890 2005 $(56,600) (19,750) $(76.350) 2004 $930,110 644,190 $285,920 $183,620 19,430 6,710 29,100 76,430 315,290 27,230 $(56,600) $(56.600) 2004 $ (56,600) $(56.600) With the purchase of the land and building in August 2005, rent expense had been eliminated. 2 Previous losses were carried forward, offsetting all taxes owing for 2006. BIS's estimated tax rate was 23 per cent.