Recast Frosty Footwear's income statements for the last two years considering the potential income statement adjustments under the income approach to business value. Calculate the Non-Recasted and Recasted EBITDA.

Exhibit 1: Frosty Footwear Inc. Income Statements for Years 2005-2007 2007 2006 2005 $ 2,248,511 41,300 $ 1,789,429 30,172 $ 2,050,742 31,800 Sales Units Sold Cost of Goods Sold 596,194 185,736 26,921 12,434 62,723 Material 771,007 251,120 25,719 693,945 207,823 18,374 19,110 95,798 Direct Labor Rent Allocation 11,131 77,157 Depreciation Allocation Other 1,136,134 Total Cost of Goods Sold 884,008 1,035,050 $ 1,112,377 $ 1,015,692 Gross Profit 905,421 Operating Expenses 138,238 23,900 22,331 47,422 23,912 122,089 32,551 104,310 25,162 4,008 1,995 12,600 107,534 367,186 Owners/Mgt Compensation CEO Bonus Compensation Salaries & Wages 151,000 4,270 29,395 99,177 24,447 154,430 133,000 20,327 139,523 45,131 20,793 71,815 14,000 94,304 29,021 14,224 3,901 12,600 42,310 210,169 Professional Fees Rent Allocation Commissions Bad Debts Advertising & Promotion 74,302 25,184 24,582 2,814 12,600 19,517 264,125 Trade Shows Research Depreciation Allocation Amortization--Purchase Debt Interest Other Expense Total Operating Expenses 1,033,238 885,843 851,118 $ 164,574 Operating Profit 79,139 19,578 %24 Exhibit 5: Projected Income Statements for Years 2008-20010 2009 2010 2008 $2,600,000 $3,000,000 $3,500,000 Sales Cost of Goods Sold 1,030,000 335,000 1,195,000 Material 910,000 296,000 Direct Labor 390,000 Rent Allocation 26,000 26,000 26,000 Depreciation Allocation 17,770 19,800 17,950 100,230 146,200 Other 123,050 Total Cost of Goods (51%) 1,532,000 1,777,000 1,350,000 $1,250,000 $1,468,000 $1,723,000 Gross Profit Operating Expenses Owners/Mgt Compensation 150,000 180,000 220,000 CEO Bonus Compensation 45,000 32,500 37,500 Salaries & Wages 24,500 27,000 29,700 Professional Fees 10,000 10,000 10,000 Rent Allocation 24,000 24,000 24,000 165,000 191,345 Commissions 143,770 30,000 Bad Debts 26,140 34,790 138,000 120,000 Advertising & Promotion 160,000 Trade Shows 26,000 28,000 30,000 15,000 15,000 Research 15,000 Depreciation Allocation 3,230 4,050 4,200 12,600 Amortization--Purchase Debt 12,600 12,600 Interest 117,630 134,955 156,548 Other Expense 219,630 286,895 339,817 Total Operating Expenses (36%) 925,000 1,093,000 1,273,000 $325,000 $375,000 $450,000 Operating Profit Note: For years 2011 and 2012, sales were projected to grow by 10% per year and the cost percentages were projected to stay the same. Frosty Footwear, Inc. Recasted Income Statements for 2006 & 2007 2007 2006 Operating Profit 19,578 79,139 Recasting Adjustments: Owners/Mgt Compensation CEO Bonus Compensation Salaries & Wages 80,000 7,914 8,331 10,422 23,912 122,089 22,485 104,310 25,162 4,008 1,995 12,600 107,534 35,000 565,762 546,615 218,646 327,969 80,000 1,958 29,395 10,177 24,447 154,430 17,894 74,302 25,184 24,582 2,814 12,600 19,517 35,000 512,300 393,121 157,248 235,873 Professional Fees Rent Allocation Commissions Bad Debts Advertising & Promotion Trade Shows Research Depreciation Allocation Amortization--Purchase Debt Interest Other Expense Earnings Before Taxes Income Taxes (.40) Earnings After Taxes EBITDA: Recasted EBITDA: Not Recasted: EBITDA: Not Recasted