Case C Northern Lights Communications Phone Problems The following financial statements are for the Northern Lights Corporation. The company provides pay phone service at many of the small convenience stores in Ontario and Manitoba. The business was meeting plan until 2011 when a problem developed. Balance Sheet ASSETS 2010 2011 Current Assets: Cash and cash equivalents $ 668,778 $ 592,491 Accounts receivable 4,453,192 3,888,621 Inventories 137,036 112,699 Prepaid expenses and other current assets 411,990 407,274 Total current assets: $ 5,670,996 $5,001,085 Fixed assets: Property, plant, and equipment (net) $12,935,453 $16,466,001 Site licenses 1,941,467 3,771,571 Investments in affiliates 164,549 251,672 Total fixed assets $15,041,469 $20,489,244 Other assets 681,754 455,488 TOTAL ASSETS DEBT (LIABILITIES) AND EQUITY $21,394,219 $25,945,817 Current Liabilities Notes payable $ 659,604 Case C Northern Lights Communications 2 Current portion of other notes payable 1,491,767 $3,320,197 Current portion of capital lease obligations 1,094,381 668,826 Accounts payable 310,358 835,384 Accrued telecommunications and other expenses 2,971,935 3,036,633 Income taxes payable 256,140 475,945 Total current liabilities $ 6,784,185 $ 8,336,985 Long-term liabilities: Notes payable, less current portion $ 6,605,835 $10,030,963 Capital lease obligations 780,593 Deferred income tax liability 342,359 56,219 306,021 Total long-term liabilities $ 7,728,787 $10,393,203 Preferred stock $ 2,400,000 $ 2,400,000 Common stockholders equity: Common Stock $ 1,438,903 $ 1,438,903 Additional paid-in capital 10,630 10,630 Retained earnings 3,031,714 3,366,096 Total ownership equity $ 4,481,247 $ 4,815,629 TOTAL DEBT AND EQUITY $21,394,219 $25,945,817 Income Statements for Northern Lights Communications, Inc. 2010 2011

Sales Revenue Pay-phone coin calls $14,036,665 $17,615,069 Automated operator, routed calls 17,049,394 15,932,154 Other 505,581 1,363,738 Total revenues $31,591,640 $34,910,951 Operating expenses: Telephone charges $ 7,851,842 $ 9,078,851 Commissions 4,909,445 5,627,288 Telecommunications fees 1,821,930 1,519,095 Depreciation and amortization 4,298,090 5,353,797 Field operations personnel 2,016,935 2,988,456 Chargebacks and doubtful accounts 1,104,896 1,111,857 General and administrative expenses 5,520,405 6,435,919 Total operating expenses $27,523,543 32,115,263 Operating income $ 4,068,097 $2,795,688 Other income (expenses): Interest expense ($1,631,416) ($1,816,222) Interest income 57,278 5,069 Losses on affiliates ( 34,608) ( 108,556) Unusual gains 1,160,238 27,234 Total other income (expenses) ($ 448,508) ($ 1,892,475) Income before taxes $3,619,589 $ 903,213 Provision for income taxes 1,339,140 424,831 Net income $2,220,449 $ 478,382

Questions 1. Using financial ratios, compare the firms financial performance for 2010 and 2011. 2. What do you think might have happened from 2010 to 2011?