DMR FOOD CORPORATION

(O/A SWEET SELECTION)

Balance Sheets

As of December 31, 2006

(Expressed in Canadian dollars)

		December 31, 2006		September 30, 2006
		(Unaudited)		(Audited)
Assets
Current assets:
Cash and cash equivalents	$	-	$	-
Accounts receivable		647,166		431,273
Inventories		562,737		525,793
Prepaid expenses and sundry assets		47,405		47,068
Advance to related corporation		26,916		40,744
		1,284,224		1,044,878
Property, plant and equipment (note 8)		337,361		121,946
	$	1,621,585	$	1,166,824
Liabilities and Shareholders’ Equity
Liabilities
Current
Bank indebtedness	$	258,347	$	197,795
Accounts payable and accrued liabilities		734,520		621,203
Current portion of long-term debt		35,977		32,317
Income taxes payable		54,788		25,487
Advances from shareholder		167		167
		1,083,799		876,969
Long-term
Obligations under capital lease		204,868		24,367
Advances from related corporation		6,793		13,816
		211,661		38,183
Shareholders’ equity:
Share capital		160		160
Retained earnings		325,965		251,512
		326,125		251,672
	$	1,621,585	$	1,166,824

Approved on behalf of the Board:

Director

Director

The accompanying Financial Statements for the three months ended December 31, 2006 have not been reviewed or audited by the Company’s Auditor

DMR FOOD CORPORATION

(O/A SWEET SELECTION)

Statement of Income and Retained Earnings

(Unaudited)

(Expressed in Canadian dollars)

		Unaudited		Unaudited
		For the 3 months ended		For the 3 months ended
		December 31		December 31,
		2006		2005
	$		$
Sales		1,554,865		1,274,254
Cost of sales		1,175,559		928,651
Gross profit		379,306		345,603
Delivery		63,406		47,723
Salaries and benefits		25,491		14,710
Occupancy cost		23,982		25,607
Advertising and promotion		31,935		32,143
Sales salaries and commission		18,128		19,505
Travel		15,200		12,252
Office and general		9,935		6,668
Amortization		3,406		3,480
Insurance		7,124		8,172
Bad debts		2,400		8,400
Interest and bank charges		3,706		2,411
Professional fees		76,140		800
		280,853		181,871
Income before Income taxes		98,453		163,732
Income taxes		24,000		-
Net Income		74,453		163,732
Retained earnings, beginning of year		251,512		192,876
Retained earnings, end of period		325,965		356,608

DMR FOOD CORPORATION
(o/a Sweet Selections)

Statement of Cash Flows
For the three months ended December 31, 2006

Cash flows from (used in):		Three months			Three months
		ended			ended
		Dec. 31, 2006			Dec. 31, 2005
Operating activities
Net income	$	74,453		$	94,193
Adjustment for:
- amortization		3,406			3,480
		77,859			97,673
Changes in non-cash working capital
- accounts receivable		(215,893	)		120,117
- inventories		(36,944	)		(49,753	)
- prepaid expenses and sundry assets		(337	)		11,445
- accounts payable and accrued liabilities		113,317			(134,462	)
- income taxes payable		29,301			(4,477	)
		(110,556	)		(57,130	)
		(32,697	)		40,543
Investing activities
Property and equipment		(218,821	)		(44,513	)
Financing activities
Obligations under capital lease		184,161			-
Bank indebtedness		60,552			(10,000	)
Advances to related corporation		13,828			65,620
Advances from related corporation		(7,023	)		(59,650	)
Advances from shareholders		-			167
Long term debt		-			(14,398	)
		251,518			(18,261	)
Change in cash		-			(22,231	)
Cash, beginning of period		-			46,279
Cash, end of period	$	-		$	24,048
Other cash flows information
Interest paid	$	2,424		$	861
Taxes paid		24,000			-

DMR FOOD CORPORATION
(o/a Sweet Selections)

Notes to Financial Statements
For the three months ended December 31, 2006

General

The Company was incorporated under the Ontario Business Corporations Act and its major business activity includes packaging and distribution of snack food products.

1.	Significant Accounting Policies
	a)	Revenue recognition
		The Company recognizes its revenue at the time when goods are shipped and invoiced to customers and when all significant obligations have been satisfied and collectibility is reasonably assured.
	b)	Inventories
		Inventories are valued at the lower of cost and net realizable value on a first-in, first-out basis.
	c)	Property and equipment
		Property and equipment is recorded at cost and amortized annually over their estimated useful lives at the following rates:

Packaging equipment under capital lease lease	- straight line over the term of the
Display units	- 10 years straight line
Packaging equipment	- 10 years straight line
Office equipment	- 10 years straight line
Computer equipment	- 4 years straight line
Vehicle	- 30% declining balance
Leasehold improvements lease	- straight line over the term of the

If it is determined that the carrying amount of a property or equipment exceeds its net recoverable amount, which represents the undiscounted estimated future net cash flow expected to be received from the ongoing use and residual worth of the property, it is reduced to its estimated fair value.

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DMR FOOD CORPORATION
(o/a Sweet Selections)

Notes to Financial Statements
For the three months ended December 31, 2006

1.	Significant Accounting Policies (continued)
	d)	Income taxes
		The Company uses the asset and liability method of accounting for income taxes. Under this method, future tax assets and liabilities are determined according to differences between the carrying amounts and tax bases of the assets and liabilities. The change in the net future tax asset or liability is included in income. Future tax assets and liabilities are measured using tax rates and laws expected to apply in the years in which assets and liabilities are expected to be recovered or settled. Future income tax assets are recorded in the financial statements if realization is considered more likely than not.
	e)	Use of estimates
		The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ.
	f)	Leases
		Leases are classified as capital or operating depending upon the terms and conditions of the contracts. Asset values recorded under capital leases are amortized on a straight-line basis over the period of expected use. Obligations recorded under capital leases are reduced by lease payments net of imputed interest.
	g)	Foreign currency translation
		Monetary assets and liabilities have been converted to Canadian funds at the rate of exchange applicable at the balance sheet date and non-monetary assets have been converted at historic rates. Revenue and expenses in foreign currencies have been converted at the rates prevailing at the time they were incurred.

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DMR FOOD CORPORATION
(o/a Sweet Selections)

Notes to Financial Statements
For the three months ended December 31, 2006

2. Inventories

		2006		2005
				(unaudited)
Raw materials	$	184,265	$	417,210
Finished goods		378,472		122,699
	$	562,737	$	539,909

3.	Advances to Related Corporation
	The advances are receivable from a corporation controlled by one of the shareholders and are non-interest bearing, secured, and due on demand.
4.	Property and Equipment

								2006
				Accumulated		2006 Net		(audited)
		Cost		amortization		book value		Net book value
Packaging equipment under capital
lease	$	244,758	$	4,610	$	240,148	$	29,201
Display units		97,647		84,012		13,635		13,905
Packaging equipment		87,800		39,522		48,278		43,405
Office equipment		26,469		6,027		20,442		20,577
Computer equipment		25,513		19,157		6,356		6,356
Vehicle		24,339		18,506		5,833		5,833
Leasehold improvements		5,869		3,200		2,669		2,669
	$	512,395	$	175,034	$	337,361	$	121,946

5.	Bank Indebtedness
	The Company has a demand operating loan facility of $250,000, bearing interest at the Royal Bank prime lending rate plus 1.25% per annum. The facility is secured by a general security agreement covering all assets of the Company as well as guarantee and postponement of claims in the amount of $250,000 by each of the shareholders of the Company.

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DMR FOOD CORPORATION
(o/a Sweet Selections)

Notes to Financial Statements
For the three months ended December 31, 2006

6. Advances from Related Corporation

The advances are payable to a corporation significantly influenced by one of the shareholders, bear interest at 4.25% per annum and are repayable in monthly blended payments of $2,341.	$	33,579
Less: current portion		26,786
	$	6,793

7. Share Capital

		2006		2005
				(unaudited)
Authorized:
Unlimited number of Common shares
Issued:
300 Common shares	$	160	$	160

8.	Economic Dependence
	Approximately 75% of the Company’s sales were to three customers.
9.	Commitments and Contingencies
	In addition to the commitments on the capital lease (note 6), the Company is committed to various operating leases for premises, vehicles and equipment used in its operations. The approximate future minimum annual lease payments are as follows:

2007	$	142,000
2008		140,000
2009		70,000
2010		60,000
2011		68,000

The Company has guaranteed residual values totaling approximately $62,000 on certain leases.

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DMR FOOD CORPORATION
(o/a Sweet Selections)

Notes to Financial Statements
For the three months ended December 31, 2006

10.	Financial Instruments
	Fair value estimates are made at the balance sheet date, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.
	The carrying amounts for accounts receivable, advances to related corporation, bank indebtedness, accounts payable and accrued liabilities and obligations under capital lease on the balance sheet approximate fair value because of the limited term of these instruments. The estimated fair value of advances from shareholders and advances to and from related corporation could not be determined as there is no comparable market data.
	Credit risk
	Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of accounts receivable. The Company performs periodic credit evaluations of the financial condition of its customers. If necessary, allowances are maintained for potential credit losses consistent with the credit risk of specific customers.
	As at year-end, four customers accounted for approximately 62% of accounts receivable.
	Interest rate risk:
	Bank indebtedness bears interest at a variable rate. Consequently, there is risk of cash flow exposure.
	Currency risk:
	A portion of the Company’s inventory related purchases are denominated in US dollars. Consequently, bank indebtedness, cost of goods sold and accounts payable were exposed to foreign exchange fluctuations.
11.	Comparative Figures
	The Company changed its year-end from October 31 to September 30 in the prior year. As a result, prior year’s figures are for an eleven-month period and were neither audited nor reviewed.
	Certain prior year’s figures have been reclassified to conform with the current year’s presentation.

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