Kitwanga Furniture Ltd. (Kitwanga) is a manufacturer of high-quality traditional wood furniture. Kitwanga sells its furniture to retailers and distributors mainly in Canada and the United States, although about 8 percent of its business is in Europe and Asia. The company has been very successful since it was founded in 1953, but in the last few years Kitwanga’s performance has deteriorated significantly in the face increasing operating costs, international competition, and currency problems. Management is concerned that the company is in financial distress and heading for serious problems that will threaten its survival. Some of Kitwanga’s shareholders have approached you for advice about the company’s status.

They have provided you with Kitwanga’s most recent cash flow statements and have asked you to prepare a report that addresses the prospects for the company.

Required:
Prepare the report.

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Kitwanga Furniture Ltd. Statement of Cash Flows for the Years Ended July 31, Operations Net loss 2014 ($972,800) 2013 ($1,808,800) Items not affecting cash Depreciation 529,150 589,000 Losses on disposal of assets 209,000 427,500 Writedown of assets 285,000 180,500 50,350 (611,800) Changes in non-cash working capital accounts Accounts receivable 395,200 459,800 Inventory 285,000 171,000 Prepaids 161,500 191,900 Accounts payable and accrued liabilities (167,200) (209,000) 724,850 1,900 Financing activities Issue of short-term debt 1,020,000 427,500 Repayment of short-term debt (445,000) Bank loans 807,500 950,000 Repayment of long-term debt (855,000) (855,000) Dividends paid (1,900,000) (1,900,000) (1,372,500) (1,377,500)