DATE: 10/15/14 BREATHESCREEN INC.

TRANSACTION ANALYSIS AND FINANCIAL STATEMENTS

Dr. John Anderson previously worked as a research scientist for Sensor Inc., a company that

develops tiny sensors that detect and identify trace amounts of chemicals in the air. Sensor Inc.

markets and sells the sensors to industrial companies to assist with leak and hazardous agent

detection. Anderson plans to license the technology and develop the sensor for a device that

would help physicians detect early-stage cancers. Patients would breathe directly into the

device, which would analyze a user's breath for traces of key compounds associated with the

most common cancers. In addition to eliminating the need for invasive biopsy procedures, the

screening tool would also be inexpensive, easy to use and provide immediate results.

In 2012, Anderson applied for the trademark for "BreatheScreen" with the United States Patent

and Trademark Office and was granted the trademark in November 2012. In addition to the

small entity electronic filing fee of $375 for the trademark, Anderson paid $2,500 to a lawyer

who assisted him with the filing process.

The following provides a summary of events for 2013:

1. On January 2, Anderson, together with three investors, established BreatheScreen Inc.

BreatheScreen issued 17,000,000 common shares to investors for $2 per share.

2. Also on January 2, BreatheScreen issued an additional 3,000,000 shares, which were

given to Anderson in exchange for the trademark "BreatheScreen." The trademark is

viewed as a key success factor to the business.

3. On January 5, BreatheScreen signed a one-year licensing agreement with Sensor Inc. The

licensing period began on February 1, 2013, and the annual fee of $3,000,000 was paid in

full.

Jaclyn Foroughi, CFA, and Professors Madhav Rajan and Anne Beyer prepared this case as the basis for class

discussion rather than to illustrate either effective or ineffective handling of an administrative situation. This case

study is for illustrative purposes only and is based on the fictional details provided by the authors.

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This document is authorized for use only in Financial Statement Analysis - 25 July 2016 by Dr Ding Ding, SIM University from July 2016 to September 2016. BreatheScreen Inc.: Transaction Analysis and Financial Statements A-216 p. 2 4. On January 10, BreatheScreen purchased new machinery that will be used in the

production of the BreatheScreen for $13,500,000 in cash. An additional $1,500,000 was

paid for installation.

5. BreatheScreen contracted with a small health technology company to modify the original

sensing chip to detect certain volatile organic compounds (VOCs) associated with cancer.

Toward the end of February 2013, the health technology company delivered the required

specifications and a pre-production model and was paid a total of $2,000,000.

6. On February 23, BreatheScreen paid $6,000,000 upon receiving a delivery of materials

for use in the production of BreatheScreen.

7. BreatheScreen paid $400,000 for salaries to corporate officers and employees (for the