As per attached

1.
a. Difference between “cash flow from operations” and net income:
(i) 20-20 Technologies Inc.
Year 2009 – Cash flow from operations is US $ 4,600,000 and net income is US $ 2,581,000.
Therefore, the difference between the two would be US $ 2,019,000.
Year 2010 - Cash flow from operations is US $ 2,998,000 and net income is US $ 2,289,000.
Therefore, the difference between the two would be US $ 709,000.
(ii) Northcore Technologies Inc.
Year 2009 – Cash flow from operations is negative Canadian $ 1,913,000 and net income
(loss) was Canadian ($ 2,409,000). Therefore, the difference between the two would be
negative Canadian $ 496,000.
Year 2010 - Cash flow from operations is negative Canadian $ 1,577,000 and net income
(loss) was Canadian ($ 2,918,000). Therefore, the difference between the two would be
negative Canadian $ 1,341,000.
Exhibit 1: QOE analysis
QOE analysis
company
20-20 Technologies Inc., October 31, 2010
Comparator company Northcore Technologies Inc., December 31, 2010
Part 3: Comparator company
choice commentary
The comparator company chosen is on the basis of the
line of business adopted. It is similar to 20-20
Technologies Inc. as both companies are into the
technology and software industry. As they are in similar
line of business, their major revenue streams are also from
similar sources as they relate to provision of software
related and maintenance services. Further, the company is
not in development stage and is an established company.
This was very essential as a development stage company
could not have proved to be a comparator for a well-
established company like 20-20 Technologies Inc. the
comparator company is more or less the same size of 20-
20 Technologies in terms of the net income (loss) for the
two for the year 2010.
Exhibit 2:QOE adjustments analysis
Part 1 a.
Excess of cash flow from
operations over net income
for 2010 and 2009.
20-20 Technologies Inc. 2010: US $ 709,000 2009: US $ 2,019,000
Comparator Company –
NorthCore Technologies Inc.
2010: Canadian 2009: Canadian $ 496,000
$ 1,341,000
Parts 1 b and 1c.
Item 1
QOE adjustment:
20-20 Technologies
20-20 Technologies Inc. reports an add-back of $
3,894,000 for amortization in 2010 and $ 3,961,000 in 2009.
As per the discussion on depreciation and amortization in the
note on significant accounting policies, it is seen that the
company follows a policy of accounting for property and
equipment at cost and amortising them over their estimated
useful lives according to the straight-line method.
Significance of adjustment It has been viewed that that the straight-line method of
depreciation is a negative factor in QOE model. This implies
that it is not truly reflective of the economic activity and an
accelerating depreciation lead to higher-quality earnings.
Analysis of comparator
company
Northcore Technologies also reports depreciation on
straight-line basis but the amount is not as high as compared
to 20-20 as the company has not made a high...